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$3500 - $7500 Apartment Renovations???
Why do our renovation expenses seem to be so much more expensive than investors I hear on BP podcasts or at conferences, etc.? I hear investors repeatedly quoting renovation expenses of value-add apartment renovations between $3500-$7500/unit. I have no idea how they are doing this given the fixed expenses associated with construction and materials. Routinely investors on these platforms list appliances, counters, flooring, and updated cabinetry(facing/painting/hardware/etc.), among other things as part of their value-add renovations.
I began investing in small multi-family properties in need of significant renovations about 4yrs ago. The properties are value-add investments with complete renovations to the buildings both inside and out. My experience has been that with these properties our renovation expense has typically been $20-$25k+ per unit. This covers stainless appliances, counters(stone or laminate pending location), refinishing hardwoods or installing new laminate floorings, paint, cabinets, light fixtures, complete bath renovations, etc. So pretty much everything is new when we are finished.
Is this just a case of blurred definitions for value-add? Maybe our company is going way to far with renovations that aren't necessary to re-position the properties?
Some common renovation expenses:
Entry level stainless appliances are $1600 - $2000
To repaint all surfaces of a 800 sq ft apartment is going to cost at least $1500; probably more.
New flooring is at least $2/sq ft for product and another $3 sq ft to remove the old flooring and install. That's another $4000 per unit. (I hear numbers like $1200 for flooring thrown around by investors - what flooring is this and who is installing it for so little?)
Counters are $600-$800 for laminate or $1500 - $2500 for stone.
This doesn't count lighting fixtures, bathrooms fixtures, window treatments, etc. And the total is already at a minimum $7000 - $7500. If the bathroom needs to be redone or kitchen cabinets need updating/replacing/etc. the cost increases exponentially.
So my question is this. What renovations can be done within the $3500 - $7500 price points I always see quoted? Maybe our company is just buying properties in need of more renovation per unit than most investors will tackle? Someone please educate me on how on what we may be doing wrong. Or are they just buying properties in need of much lighter renovations? Send me your thoughts so we can improve our process and reduce our renovation expenses!
Thank you.
Below is list (end of post) from my property manager 2 days ago to seek permission for completely rehab 2 bed 1 bath ~900 sqft unit including all floor, paint, new doors, rebuild kitchen, bath, appliance, etc. Only thing in the unit that is kept is the bathtub. This is the 5th unit I have rehabbed in the same building, this one is the most expensive. First 4 range from $4k to 7k, depend on what can be salvaged. However, this is not high end finish (rent for $900) and uses non-employee contractors. It will be cheaper if somebody use employees that can lower the labor cost. If you want high end finish, add to the material cost. No way it cost $20k+ for 2 bedroom or 800 sq ft unit. Cost varies by city (how busy are the contractors). In another more hot market, I completely rehabbed a 2 bed 1 bath 1000 sqft (include new water heater, but keep kitchen cabinet) for close to $10k about 3 months ago. Labor is higher due to demand. Key for me is a good property manager (I am remote) who is willing to do extra to safe cost for the owner. The person would do comparison shopping on Lowes, Home Depot, Amazon to find best price for me. Also ask to see itemized receipts each months. I am sure larger scale companies can do way cheaper vs. me as they get more discount on material and definitely lower labor cost. --------------------------------------------------------------------------- $400.00 Clean out unit, remove dumped outside trash and partial demo.
$620.00 Painting supplies ($312.00) and new doors ($308.00)
$1000.00 Labor for wall and ceiling repair, painting entire apartment. Painting and installing all new doors
$1100.00 plywood ($96.04), laminate flooring (622.92), vinyl tile ($95.00) quarter round molding for entire apartment, ($156.00) and prep supplies.
$200.00 Labor to remove existing floor in kitchen and bathroom and install new subfloor.
$900.00 Install all new flooring through entire apartment.
$200.00 Lights ($100), outlets, & switches ($100).
$200.00 Labor to replace all outlets, switches, covers, and light fixtures.
$1950.00 Appliances(stove, fridge, vent hood) ($994.88), cabinets ($584.00) countertops, sink, faucet,($227.41) & plumbing connectors.
$700.00 Kitchen remodeling labor including plumbing (Mikey)
$500.00 Tub surround(Amazon $120.00) medicine cabinet ($30.00), vanity ($145.00), toilet ($99.00, bathroom hardware & faucet ($50.00) plumbing connectors.
$600.00 Bathroom remodeling labor
$400.00 Trim ($25.00), blinds ($35.00), & baseboard heater covers ($320.00)
$200.00 Labor for installing baseboard covers, trim, blinds, and final cleaning.
$4200.00 Labor
$4770.00 Materials
$8970.00. Total Cost
@Brian Green the $7,500 you see is an excel spreadsheet number or a lazy guesstimate from the property managers renovation super. Your numbers are about right except the biggest corner cut is flooring. An inexperienced owner will fall for the rolled laminate flooring trap. Cheap rolled laminate can be installed for as little as .50-.75/sq foot labor and materials. They use the stuff that looks like real plank/tile/wood and in the pictures it can look decent. Problem is that it is as bad as carpet and lasts 1-2 turns. First piece of furniture or appliance moved in will gash this flooring or just one water leak and its difficult to impossible to replace so it is being turned VERY frequently and the front end savings are offset over 3 years with replacements.
Another consideration is size of a unit a 500-600 sq foot unit can probably be turned for $7500:
Appliances:$1500 - I'm getting sets in bulk under $1000 but you have to know how to do this and you need storage. Your PM won't be of much help here. PM likes to order from one of the big delivery companies HD or MD Supply at 5-20% above retail or a "deal" that they have with a company like GE. Shop around, this is one line item where you can make a big dent in the budget.
Rolled Flooring: $500 - Not recommended but being used. Most skimp on replacing baseboards but that is a must with any new flooring other than carpet.
Quartz Countertops: $1000 -
Paint $750 - if your turning a lot of units it should cost less than $1/sq foot and doesn't include scraping popcorn ceiling. $1200 if scraping popcorn.
Cabinets $1200-1500 - Can find them for less than $1000 bulk negotiated
Light fixtures and electrical - $700
Plumbing fixtures - $900
Shower surround - $1000
And there you go $7,500 or less. Keep in mind none of this includes the dry rot remediation, subfloor repairs, etc. You find a lot of problems in a 40 year old building once you begin. YMMV depending on region. In the Bay Area for example people are paying $2-3/foot for paint and $4-10/sq foot to lay the right flooring. The big shortcut to get to budget is using rolled laminate garbage and this is an enormous mistake because when all the units are done and repositioned for sale the next buyer will walk the units and they will look like the flooring you had in the unit before the remodel. Problem is that using laminate plank (also not a fan) or tile destroys this budget. But sounds like your thinking of doing this the right way.
Finally when a broker tells you "$3500/door" just ask that broker how many apartments he has turned.
Here are a few pics of how my units look and I can't touch $7,500. I've been coming in at $9-11k and that has not been easy.
@Serge S. Great feedback. More specific to the flooring. Is there a reasonably priced product you are currently using or have had success with? You mentioned you don't care for the laminate plank either so are you using LTV, real wood, other?
I'll have to shop a bit more seriously for cabinets, counters, and appliances. Seems like we're over paying with our current product type/vendors.
Great help and perspective, thank you!
@Edward Liu Thank you Ed. As I review some of those labor costs they seem really low. I'm hiring all outside contractors and ensuring they are legit(insurance/contracts/etc.). Are your property managers hiring to the same standards?
I appreciate the pricing example so my team can go back and start re-evaluating our cost breakdowns. Great example. Thank you.
I should not mention the property manager's political views, but what I can say is he definitely only hire people who legally work, issues 1099 to them, contractors all have many years of experience, and end results are good quality:
This building is 5 min walk to a hospital and we had first nurse tenant about 18 months ago with 1st rehab. Now 4 out of 4 rehab are filled by nurses through word of mouth. For this 5th unit, it is already rented (no advertising) before we even start the rehab (another nurse). She does not need to see the finished unit, given she has seen how other units' finish. To me, this is good enough for quality of work.
You need to negotiate hard with contractors on labor cost. For example, my PM stick to it that flooring labor will be no more than $1 per sq ft - not counting material. When we first started rehab in that buildings, contractors proposed $1.75, $1.35, etc. We would not budge. In some cities, you need to pay a little higher, but should not be $2 per sq ft. You can change the flooring material cost, but labor cost should not double if your material cost doubles. I keep history of all the major jobs done on my properties, thus start have better ideas of what each type of job can cost. It does not mean I will always get the best price, but if close enough, I will take it.
Another way to think about labor cost is how many days does contractor use to finish the flooring or paint or the bathroom. Go track it. What is their daily income based on the price you pay? If they earn more daily than you, likely you are over paying the labor cost.
@Brian Green I think the biggest difference is in labor costs, and that varies GREATLY on location. I’m in San Francisco, work with a less expensive level contractor, and have to fight hard to get your pricing. I’m jealous of @Edward Liu and his costs, but I’m sure he couldn’t touch that in Palo Alto ;)
What I can get locally though is pretty good pricing for decent quality finishes. Some great Chinese construction supply houses in the city with good contemporary styles, and low prices so I can do nice kitchens, baths, floors for reasonable prices. For me the high cost is always in labor, so if I can buy nice kitchen cabs for $1100-1500 per unit, buying crap for $800 doesn’t make sense. Decent stone counters $140-180/slab, so why bother buying cheap looking laminate counters for $40 PSF? Saving $200 on counter materials isn’t worth it for me. I also get great LVP (not that shiny crap) for $2 PSF. Etc.
For appliances, I try to buy during the big box usual sales...Memorial Day, Black Friday, July 4, whatever else they have. Sometimes I’ll order them early on sale, and just push back delivery until when I need them.
@Serge S. I’m a (recent) fan of LVP, but curious why you don’t like it. Am I wrong, but it seems really durable. And these Chinese dudes are knocking off some really nice looking product (not too shiny) for only $2 PSF. It includes a softer waterproof rubber subsurface too, so ready to go. I took a sample and had to use an edge of a flathead screwdriver pushed hard to mark the surface. Being in San Francisco my renatlas are higher end, and I’ll usually put in a solid wood floor. It can be refinished in the future, and my tenants are great, so they don’t eff it up. BUT, I now have a couple ground floor units on concrete slab, and I want no chance of wood warp. So I’m putting that LVP on those. So far so good!
my2c
Originally posted by @Brian Green:
Why do our renovation expenses seem to be so much more expensive than investors I hear on BP podcasts or at conferences, etc.? I hear investors repeatedly quoting renovation expenses of value-add apartment renovations between $3500-$7500/unit. I have no idea how they are doing this given the fixed expenses associated with construction and materials. Routinely investors on these platforms list appliances, counters, flooring, and updated cabinetry(facing/painting/hardware/etc.), among other things as part of their value-add renovations.
I began investing in small multi-family properties in need of significant renovations about 4yrs ago. The properties are value-add investments with complete renovations to the buildings both inside and out. My experience has been that with these properties our renovation expense has typically been $20-$25k+ per unit. This covers stainless appliances, counters(stone or laminate pending location), refinishing hardwoods or installing new laminate floorings, paint, cabinets, light fixtures, complete bath renovations, etc. So pretty much everything is new when we are finished.
Is this just a case of blurred definitions for value-add? Maybe our company is going way to far with renovations that aren't necessary to re-position the properties?
Some common renovation expenses:
Entry level stainless appliances are $1600 - $2000
To repaint all surfaces of a 800 sq ft apartment is going to cost at least $1500; probably more.
New flooring is at least $2/sq ft for product and another $3 sq ft to remove the old flooring and install. That's another $4000 per unit. (I hear numbers like $1200 for flooring thrown around by investors - what flooring is this and who is installing it for so little?)
Counters are $600-$800 for laminate or $1500 - $2500 for stone.
This doesn't count lighting fixtures, bathrooms fixtures, window treatments, etc. And the total is already at a minimum $7000 - $7500. If the bathroom needs to be redone or kitchen cabinets need updating/replacing/etc. the cost increases exponentially.
So my question is this. What renovations can be done within the $3500 - $7500 price points I always see quoted? Maybe our company is just buying properties in need of more renovation per unit than most investors will tackle? Someone please educate me on how on what we may be doing wrong. Or are they just buying properties in need of much lighter renovations? Send me your thoughts so we can improve our process and reduce our renovation expenses!
Thank you.
We do most of the work and buy used stuff. Cheap, quality, fast-- pick two. Right now we're doing: cheap and quality ;)
In our most expensive reno 1250sq ft., to make our deadline we had to hire painters to do walls, doors, and white cabinets; It cost $1500 for labor (i bought the paint) after we had already done the zinsser bin primer for smoke damage and painted all the trim. In this kitchen, the floors, stove $200, and fridge $400 were used. My husband built, painted and made the countertop for the custom island. Handyman installed used flooring, invisible hinges, and lighting. I did backsplash and helped on trim paint. Husband did all the baseboard and wainscotting (which covered up damage by previous owner's tenant that had "anger management" issues. We came in at just under $10000 including handyman and tenant labor on this one. I was very pleased with the outcome but I'm not going to lie-- I'll be ECSTATIC when we have enough units to pay pros to do all the reno work.
I don't have a before from this unit but here is one from a similar apartment around the corner:
@Brian Green valid-add definitely varies from one investor to another. However 20/25k per unit seems really high for our area. I'd be curious to see your labor costs being that we're in the same area. Have you been using the same contractors throughout each project? Being able to negotiate labor only contracts has definitely helped me. I've also been able to find deals on LVP flooring for under $2sq/ft and do the install myself since its click lock. Feel free to send me a DM for other ideas local to our area.
I am currently have a value add complex and my costs are closer to the $7000 mark (Indianapolis). I am doing a major remodel of one unit where we completely gutted to the studs and redoing with everything and it is running closer to $19k. But as above @Joshua Tobin. It probably lies in your value add definition.
The majority of mmy apratments get the following done. All the work is contracted out. Below is an actual breakdown. I am not putting in granite or quartz, no stainless steel appliances, no fancy tile.... Way overkill for my market!!! With this I get $100-$150 extra a month.
Flooring Rental for floor sander and pads $260.00
Sand/Repair living room, hallway and bedroom floors. Install ¼ round throughout apt. $750.00
Install new tile on kitchen floor $285.00
Electrical Update all lighting fixtures (5), update all electrical outlets, light switches and covers $520.00
Other Hang and finish ½” drywall on bathroom ceiling and wall and kitchen ceiling $785.00
Painting Skim walls and ceilings throughout apartment where needed $1470.00
Primer and paint walls and ceilings (ceilings white, walls grey) 2 coats
Sand, paint trim, doors, baseboards and kitchen cabinets (bright white)
Kitchen Remove ironing board from wall repair with ½” drywall and finish $235.00
Install cabinets above kitchen sink (4)
Remove molding on ceiling and repair walls
Bathroom Sand, Clean, glaze bathtub $220.00
Install new Toilet, lines, and wax set $206.00
Materials $2,022.50
Total Bid 1 $6,753.50
Jeff
all depends on the area & size of the units. I can do between $3000-$5500 in eastern PA, only because I have a flipping business where I get items in bulk and leftover items from other houses.
I usually have leftover paint, backsplashes, and buy flooring in bulk (bought water-resistant laminate for 40-45 cents and LVP for around $1). Also I have used appliances from flips and/or buy dented appliances.
$7500-$10k sounds about right if you have a higher labor cost and don't buy in bulk or have leftover items that are essentially free.
$20-$25k sounds like way too much. Here in NYC with our insane labor costs, I have friends who usually spend $25-$30k/unit.
@Jeffrey Wannberg and @Joshua Tobin
Yes, to this point I believe our renovations have been far more substantial than standard "value add" which may explain the cost of rehab difference. In many circumstances we were replacing roofs, hvac systems(or adding a/c), granite or quartz counters, etc. I guess the key is the entry point on the buy versus the spread to the ARV. It seems like we are buying properties in far more distress and moving them further up the spectrum into high end for their markets.
If we didn't do stone counters, stainless appliances, a/c, roofs, etc. are numbers would be much closer to $10k. I guess that's the distinction but the renovation schedule we are putting in is designed to not have to touch these buildings with CapX for 10+ years thereafter. Less mgmt and all cash flow.
Oh, and we don't do any of the work ourselves anymore. There's no way we'd be able to get to the scale we want doing that so it's all contracted out.
Brian, what rent difference per unit are you getting after your renovations are complete?
Jeff
Lot's of confusion always around what is a turn, upgrade, renovation etc... there is no clear cut definition but different submarkets have different vernacular that is attributed to the amount of work being done in the unit.
In my world, unit turns are make ready's completed by management and upgrades or renovations are completed by a GC. Minor upgrades are completed by management but see that is now a 4th category... see where I'm going?
Depends on the property; the last building we renovated pushed the rents from $750 to $1150-$1200. Another 3 unit saw rents go from $800-$1000 to $1550-$1800. So they are significant.
The first major renovations we completed was on a vacant 3 unit and rents now are $5600/mo total for the three 2 bedroom units. But that project as way more expensive with almost $250k in renovation. I guess it varies and the only thing that really matters is the return on the total project based on the rents achieved. Thanks for the feedback.
Thanks for sharing Brian! Those are really nice bumps up - keep it up!
Yes you can get those prices from labor
Workers who stand outside of Home Depot
Looking for work to buy beers and Dr**s
Then a month or less after they finish complaints
From tenants start coming in. Then you will have to call a licensed professional to repair the poor work and end up paying 3 times more than what it could of cost from the start.