Remodel or buy additional?

[Tim Johnson]

Hi BP!

I'm considering remodeling my 10 unit apartment building in Minnesota.  Rents are currently affordable.  The building has been 100 percent occupied since we purchased it 2.5 years ago.  The units and common areas are definitely showing their age.

I'm wondering if anyone has advice in how to compare 2 options: Rehab the 10 units & common area, vs purchasing an additional rental home/duplex or quad.  I could put $100K toward either option.  I currently own 2 other quads and 2 other SFHs.

Some things I'm thinking about:

- Current tenants might like rehabbed units, but may not like higher rents.  

- I'd feel good about having nicer units.  Current units remind me of the 1980's. 

- Is one option better short vs long term?

How do I go about taking the emotion out of this decision and choosing the alternative that makes the most business sense?

[Shaun C.]

I like having nice things, and tenants that put value on having nice things as well. I rarely ever have to replace things due to wear and tear or neglect. However, these are the same people that are 1-3 years away from owning their own homes; not the people who are perpetually renters. If you plan to hold long term, it's all market dependent. In a recently or mid gentrifying area, I'd probably buy low, fix, and sell after having all the numbers work. But if the area is stable then it only makes sense to replace with things that don't bump the rent too much.