Want to Boost Multifamily Returns? Choose Upgrades Wisely
TIPS FOR UPGRADES THAT BOOST MULTIFAMILY RETURNS
“If you own an older multi-family property in Boulder County, you are always going to be competing for tenants with newer, fancier complexes. Here’s how to choose upgrades that will keep you competitive in an ever-changing market.”
A question I am often asked by many owners of multi-family properties is, “What kind of improvements should I make to get the highest potential rent?” Cap rates are at historic lows, driving MUH property values to historic highs. In this environment how can you position your property to deliver the highest potential return on your investment?
New complexes provide amenities older complexes cannot. Roof top swimming pools, gyms, and underground parking are driving rents in some complexes to as much as to $2.50 – $3.00 per square foot. A 700-square-foot, one–bedroom apartment can fetch as much as $1,500-$1,800 per month. These complexes appeal to a certain group of renters, but their supply is setting a new bar for high rents in a market where the average bedroom rents for still below $900/mo.
Many investors are wondering if it’s possible to increase rents. The answer is perhaps, if you are competitive.
It’s important to select upgrades that will make your property feel fresh and help you increase rents — without over-improving the property and spending a lot of money on improvements with a short useful life. If you choose wisely, the right improvements will add long-term value to your property, secure the best tenants, and increase the property’s overall value when it comes time to sell.
KNOW YOUR TENANTS AND YOUR MARKETPLACE
The first step isn’t to look at your units, but instead look at the people in them and in the surrounding area. Who are the tenants in your market? What do they want, and what do they value?
For example, buildings close to campus have very different tenant profiles than multifamily housing in downtown. College students may want units that allow them to share space with roommates and amenities such as a pool. Professionals may value updated kitchens, quieter units, and appliances that enhance convenience, such as washers and dryers.
HOW TO CHOOSE
To decide where to start, make a list of potential projects, and break them into categories. For example:
- Upgrades that improve appearance of your property — These are things that tenants and prospective tenants will see right away that will make a great impression. Consider exterior projects such as building paint, roofing, improving the clubhouse and other common areas, and even improving the appearance of balconies and landscaping.
- Upgrades that improve quality of life for tenants — Inside units, look at simple upgrades such as paint, flooring, and hardware that can bring a dated space into the 21st century. New appliances are attractive and beneficial to tenants, and may also help reduce your overall energy costs. Depending on the age of units, more extensive upgrades such as bathroom fixtures, kitchen cabinets, and windows can offer strong value, especially over the long term.
- Essentials — Infrastructure improvements are something that you should build into your ongoing operating costs. Structural improvements, fire protection, and heating and cooling systems are critical investments and may preserve or add to resale value, but likely won’t help you increase rents because they are not visible to tenants.
A PLACE TO START
To get a strong sense of your tenants’ needs and define what rents are achievable, you can start with a couple of practical steps.
First — Get your hands on a market survey. You can conduct this survey yourself, contact your property manager of reach out to someone like myself familiar with the market. What you are looking for is to define what upgrades are increasing demand — is it the high-end kitchen or the new appliances that tenants are willing to pay for? Where is your money best spent?
Second — Even when you think you have a handle on your marketplace, consider a small-scale test before rolling out a major upgrade. If your timeframe allows, upgrade a few units, and watch to see which improvements get the most attention from prospective tenants.
Regardless of whether you’re looking to increase rents to improve your long-term ROI or enhance your property’s value to a potential buyer, be sure to consult with a property manager or commercial broker who are knowledgeable in your local area. Their knowledge will help you steer clear of costly projects that will have little impact and instead choose upgrades that will deliver a positive ROI.
If you are interested in looking at what potential your complex has to increase rents as well as what upgrades would be a good investment do not hesitate to call or email as always I would be happy to put together a free market survey as well as property analysis to assist with your decision making.
Want more ideas for making the most of your investment property? Contact Todd Walsh, A Boulder CRE Broker, by phone at (303) 444.4888 or by email at todd@wearemarket.com.
