Quality of tenants, thoughts/experiences/comments appreciated!

[Ryan Jopson]

Good afternoon,

I am an investor/agent specializing in the Western MA real estate market. Myself and a business associate own a handful of multi-family properties in a specific location we have deemed to be highly lucrative. It is not uncommon in our niche market to see CoC return %'s ranging from 15-20%. Cap rates in the 8-10 range. Something to note: We do self-manage and typically do NOT factor in vacancy or delinquency, so this directly affects why we are able to hit such high returns. Our average 2-bedroom apartment rents for anywhere between $800-1000/month. The units are in "nice" condition and are well kept/maintained. They usually include hardwood floors, basic updated kitchens/baths, newer-white appliances, formica countertops/laminate floors, decent sized closets, etc.

We have recently acquired another 3-family investment property. We are currently in the process of a complete renovation of all three apartments. However, we went about this in a bit of an unconventional way compared to our normal business model approach. In these units we went with much higher end finishes. Luxury-vinyl plank floors, stainless steel appliances, professionally re-vamped hardwood floors, custom kitchen cabinetry, granite countertops, etc. In basic terms; we went all out!

We are looking to see if the current state of the market will support a higher end unit at a significantly higher price. We are anticipating listing these units in the $1200-1300/month range. If all goes well, we will execute this same strategy going forward with our next acquisitions. To summarize, we are hoping the higher end finishes will attract long term tenants, with a justified increase in price.

I am more or less looking to see if others have had any success with this approach to investing/rentals.

Any thoughts, comments, feedback, or insight is greatly appreciated on my behalf. Thank you for taking the time. If you need more information to develop an appropriate response please let me know.

Thank you kindly,

Ryan J.  

[Danielle McKahn]

Hi Ryan, I generally follow this 'value-add" approach and I've had success with it. I generally include dishwasher and washer/dryer in house or if possible in-unit. I get nice energy star and often stainless steel appliances (or white, depending on the unit). I use MassSave and the Heat Loan program to insulate and if needed upgrade heating equipment. I used the MA lead credit to make the units lead-compliant (usually). I haven't gone all the way to granite countertops but do get high quality cabinets. In general, I watch Craigslist for the range and then offer at the high end of what I have seen. But there's always someone who offers first at a higher rate... Right now, I'm on the middle of a significant development that will by necessity need to be at the very high end of what I've seen, but I think it will be able to command more so I'll offer higher....

Generally speaking, I've found this approach to bring in really high quality tenants who stay for several years, or more. But the best part is that often I get handed new hig quality tenants from the old ones when they leave... So I don't often need to go through the hassle of advertising and sifting through multiple applications, and I am able to keep vacancy close to 0.