What are the most valuable/important areas to rehab when trying to improve the value of multi-unit properties?? (Is it basically the same areas as SFR’s…kitchens, bathrooms)
What can be done in your all eyes to raise the value of multi-unit properties in the eyes of other investor which need a bit of work
Thanks for the advice
The way to raise the value of multifamily properties is to raise the income. So when rehabbing, do things that would justify higher rents. Kitchens, baths are the best bang for the buck inside the unit just like a SFR. Offering other amenities such as a pool, tennis/ basketball courts, playground, etc. will also boost the income if it’s a large building or complex. Also in large buildings things like vending machines, coin operated washer and dryer (if they aren’t included in the units) and reserved/ covered parking will also help.
I don’t know if your talking about a duplex or 250 unit complex but putting a gate in the entrance/exit will give the property the feeling of exclusivity and security.
Hope this helps sparks some ideas.
Hi Op2mystic1,
DannyTheGreat is right . . . you want to raise the income while holding or reducing expenses. It’s the NOI that determines the value of a property in the eyes of the investors.
Our company (property management and full service maintenance & turnover) has what we call an ‘upgrade package’ which is basically upgrading things like light fixtures, new electrical, new faucets, new tub surrounds, new carpet and paint, just to name a few. You want the tenants to walk in and go ‘WOW!’ and give you a holding deposit. Kitchens and baths should always be clean, functional and up to date. That’s the stuff that will get you the higher rents and tenants to stay when you raise rents.
Always keep in mind your market however, if you’re in an area where there’s a lot of Section 8, keep it to a minimum but clean and nice. You still want the top of the Section 8 pool of tenants. You won’t put in the gold faucets but make it nice.
Hope this helps! Good luck.
Cate
Thanks for the ideas…Just to clarify it’s on a 3-4 unit multi-family unit that I’m most likely starting with. Definitely room for improvement. The input has been helpful.
Happy Investing!!! 
op2,
Cash flow is everything for rentals. I don’t disagree with the others about making improvements provided that any improvements that you make are justified by the additional cash flow. Typically, new landlords spend too much on rehabbing their properties (ask me how I know). It is not advisable to try to make a rental as nice as your personal residence. It is also critical that you consider the income level of your tenants. As you move down the tenant food chain, tenants are much harder on the property. Obviously, you should do less in low income properties. Safe and functional are about all you want to do in low income rentals.
In all but the most expensive areas of the country, people in the middle and upper class own their homes. Therefore, in the rental business, we are dealing with lower middle and lower class tenants. People live differently in these classes than we do - a LOT differently. I was absolutely shocked when I first got into this business. Here are some of my suggestions.
If you are putting carpet in rentals, put in the cheapest carpet you can find. Tenants are VERY hard on carpet and you can consider yourself very lucky if it lasts 5 years. More typically, the carpet will need to be replaced in about 2-3 years. In my experience, there is little difference in the life of rental carpet whether you use top of the line carpet or the cheapest carpet you can find. I use carpet that typically costs 45 to 50 cents per sq/ft.
Don’t put carpet in low income rentals. Tenants in this class can destroy carpet as fast as you can put it in. We simply paint the floors. The tenants can buy a throw rug if they choose.
Use $4 miniblinds from Walmart to cover all windows. The tenants will tear them up every time, but they look good and are easy to replace.
Don’t replace old kitchen cabinets unless absolutely necessary. Most old cabinets can be painted and will look good.
Don’t put new appliances in rentals. Tenants are VERY hard on appliances and can literally destroy (or steal) them in a year. You can buy good looking, used appliances for 20 to 25% of the cost of new appliances.
Paint all the units the same color - off white. This makes it much easier to touch up spots and to repaint later. Also, you won’t have to match or remember paint codes later. NEVER let tenants paint - they will get more paint on the floor than the walls!
Good Luck,
Mike
Mike-
I expect to see a Landlord Rule Book from you in publication by next year.
I agree. When are you going to publish it for us Mike??
Good info Mike . . . as usual.
Here in Seattle we have an interesting ‘high end’ rental market with all the Microsofties and related types who haven’t yet found their house (or even started thinking about buying one) and who want to live in a very nice apartment. We do nicer work there because we can get the rents for it . . . $1,100 for some of the one bedrooms.
So knowing which types of rehab items are more valuable would depend on what your market and tenant pool are like. It’s knowing which apartments to do the custom work in (which will yield the high rents and good tenants) and which are the low end ones to minimize the turn on and get it occupied with the next Section 8 tenant . . . we manage both types and everything in between up here. It’s an interesting market to say the least.
As a bonus we learn more from the low end buildings and lower end tenant profile as they are more active, and ‘working’ with the governmental agencies is a huge eye opener.
Good luck Op2mystic1!
Cate
success with payment plans. I agree with Mike and Danny on the rehabbing information. What I did to create an amazing cashflow on my apartments in the more impoverished areas was to create a year lease with weekly, bi-weekly, or montly payment “OPTIONS”. NOT WEEKLY, BI-WEEKLY, OR MONTHLY RENTALS, BUT PAYMENTS. They are bound for year, they just have the ability to conform their payments to their lifestyle. We ease up on the deposits and work with them to provide power, internet, cable, phone, etc. So far, we’ve had nothing but success with these type units. One 20 unit we have in Warner Robins, Georgia in the worst part of town rents a 1BD/1BA for $140 per week utilities included that totals $606 per month subtract $75 for utilities and anything over the $75 they are responsible for
The best multiplier of profits without question is the conversion of multifamily units to condos (condo conversions).
For an investment of less then 10K, it provides a better ROI then raising rents, making improvements to justify rent increases, etc.
Regards,
I recommend that anyone considering condo conversions read up on the statistics of these conversions with regard to:
The number of them purchased by investors as rentals
The number of projects now starting to ‘convert’ back to ‘apartment’ use
And most importantly the huge number of lawsuits being brought against the convertors and their contractors.
The time for condo conversions I believe has come and gone. We will continue to see an increase in problems on this front.
Good luck.
Cate
Interesting post…
I am aware of such problems (not a pandemic problem) that are usually associated with TICs or unregulated conversions, can you provide all of us with some further information?
I am not as bearish as you on conversions, as this still makes sense in many markets that I work in.
Regards,
Here is an article that I wrote in one my past newsletters:
UPGRADES THAT PAY—Smart Improvements You Can Make Now & Recoup Later
Can’t live with your too-small kitchen any longer? Desperately need more storage space in your home? Always dreamed of a sunroom off the back or a bathroom downstairs? Like many Americans, you may be
considering one or several home improvement projects that could make a real difference to how you live in and how much you enjoy your home. In fact, many Americans have taken the leap already, spending $149.5
billion on home upgrades in 2005 alone, according to Harvard’s Joint Center for Housing Studies.
Much of the home improvement boom has been paid for by the homes themselves, that is, from owners tapping their home equity through equity lines of credit, home equity loans and cash-out refinancings.
It’s a smart move for homeowners who use that equity wisely–spending on improvements that will pay them back with a higher property value when it comes time to sell.
Experts advise homeowners to think carefully about what improvements to make, when to make them and how much to spend on them. Here are some valuable guidelines to consider:
In addition, chances are a similarly priced home having the same amenities as you’ve added is available in what buyers perceive to be a “better” neighborhood–where most every home has those amenities.
Make sure to keep your total upgrade costs under the 20% limit to increase the chance you’ll get all your money back when you sell.
Keep up with the neighborhood. If most of the other homes in your area have already added a second bathroom or bumped out the kitchen or turned a carport into a garage or installed new siding, those items
should be at the top of your home-improvement list.
Time major improvements so you can enjoy them. In most cases, it doesn’t make sense to undertake a big, costly home improvement just before you intend to sell. Why spend the time and energy when you may
not get back everything you invest? Better to spend what’s required to put your home in good condition–fresh paint, needed repairs, new carpeting, a thorough cleaning and a yard trim. Note, however, if a
major system in the home, such as its roof, furnace, water heater, etc., needs replacement, you should go ahead and get the work done before listing your home. Today’s buyers want homes they can comfortably move into today–not one that has an immediate problem.
(Dropping your listing price to cover the cost of a system replacement is another option, but you may actually have to go lower than actual costs to attract a buyer to your “flawed” home.)
Research first. You may dream about expanding your small master bedroom into the next bedroom by taking out a wall. Think twice. An appraiser may not count your bigger, better master bedroom for as much value as the additional bedroom you took out–you could end up losing money!
Make popular choices. Again, we can guide you in terms of what today’s buyers like–and don’t like. Go with “neutral” colors–white, off-white, beige, etc.–for expensive-to-replace items such as cabinets, countertops, flooring, carpeting, siding, etc. Buy
good quality and reliability but steer clear of high-end or trendy fixtures, materials and appliances. Buyers may like them but usually won’t pay as much for them as you did–unless, of course, they are standard features in neighborhood homes.
Hope this is of value…
Regards,