Converting a C property to a B+ without breaking the bank

There are many opportunities in renovating and repositioning older apartment properties for increased income and value, however, the neophyte renovator can easily focus on the wrong items and experience significant cost overruns. Today, with construction costs high and rents flattening, you need to make every remodeling dollar count. Where you put money and time can make the difference between a successful investment and a costly frustration. Below are some items to think about to maximize the success of your next renovation project.

Give the Customer what they want

Do you know your market? How do you know which optional improvements to choose? Smart owners take their particular market’s strengths into consideration so they can strike the right balance between improvements and costs. This means knowing more than just how much the competition is getting per square foot and what amenities they offer. It means looking at employment trends, the area’s reputation, and the depth of the market for a particular product.

Don’t just go for what you think will improve the property, survey your prospects and residents. View your competition as not just the competing buildings in the neighborhood, but from the eyes of a new prospect looking online. That could mean many properties are your competition that you never even thought of. All successful businesses view their operations through the eyes of their customers to find areas for improvement. Planning a re-development is no different.

Focus on First Impressions

When residents or potential residents pull up to your community, the first things they notice are the building façade, the landscaping, and the signage. Study your property’s curb appeal. Are the grounds neat? Is the landscaping appealing? Can people easily find and read your signs? A few simple changes such as adding exterior lights to entrances, planting trees and flowers, and making sure the paint facing the front is always fresh will go a long way to help any property.

Giving plain vanilla exteriors some jump or pizzazz can go a long way. Sometimes it’s as simple as some new accent siding, an entry gate, or a fake roof line (that doesn’t have to run through the whole property). Think Hollywood building fronts, and you’ve got the idea.

Lush landscaping and quality entry signage go a long way in setting the tone for your property. The old cliché that you never get a second chance to make a first impression may be tired, but it’s still true.

Updating Amenities

Apartment rents are determined not just by the physical product, they are also significantly influenced by the services and amenities that go along with them. You can raise your rent potential by offering great services with a good building.

Although you may want to, you can’t compete with a brand new Class A property in every feature. Your potential residents may want in-unit washers and dryers, but the cost to install may just not make economic sense. Instead, focusing on affordable upgrades such as free high-speed internet access, electronic entry locks, Nest thermostats and installing in-home security systems, may help bridge the gap toward the elusive ‘A’ label. Remember, wires are easier to run through existing walls than pipes.

Depending on the size of the property, enlarging your community building may make sense. One of the differentiators between Class A properties and the others is in the common area features. Perhaps you can upgrade your fitness center (or install one). They don’t have to cost much, on a per unit basis, and can add a lot of appeal to your property. However, sticking one in a windowless basement is NOT the way to add value.

Another amenity not usually thought of as such is improved security. Good lighting, in-unit alarms, video entry access, and gated entrances are the beginning of a good security plan. Even in good areas, residents like to know that the community is safe.

Adding package lockers, a bike storage area, or perhaps some pet amenities can go a long way in upping the appeal of your community. Providing convenient, ample storage helps attract residents. Converting carports to garages has also proved profitable, as many residents will gladly rent a garage.

Always Think Maintenance

Depending on your plan, you may want to hold this property for the long haul. Sometimes, materials that cost a little more upfront cost significantly less over time when the costs of maintenance and replacement are factored in. It is shocking the number of properties that get ‘rehabbed’ only to have to go through it again 10 years later because the quality of materials installed was so poor.

A sturdy fiberglass tub surround may cost about $80 more than a flimsy one, but will last much longer with lower maintenance. A commercial grade vinyl with a thicker wear surface will add about 30% more to the cost of an installation, but you won’t be replacing it two years later because of rips and tears caused by the tenant dragging their table or the refrigerator across the floor. LVT flooring instead of carpet not only lasts longer but adds to the appeal of the unit and the amount of rent you can charge. Plan your operating budget over the next five years – not just during the renovation – to see where a little more cost upfront might save you significantly over time.

Separate out Utilities

If ever there was a time to consider submetering or separate metering of utilities, this would be it. You’re already tearing up the walls in many cases. Analyze the plumbing or wiring for the feasibility of transferring utilities to the actual users.

New innovations are happening frequently in submetering technology. Many formerly expensive technologies are now affordable. Transferring utility costs off your income statement can do more for your property’s NOI, and therefore value, than almost any other single factor.

Even if you don’t separate out the utilities, saving utilities can be a marketing advantage in leasing units or retaining tenants. Replacing old single-pane aluminum sliders with vinyl clad windows not only makes the unit more stylish, it saves your tenant on their heating bill, and should be marketed as such

Bathrooms and Kitchens

One thing that’s been true for years and still is, is that bathrooms and kitchens sell a home. Nothing dates a rental unit more than these two areas.

In the kitchen, try to use appliances “one grade higher” than might be expected. The more luxurious looking appliances may only cost $100 more than the basic ‘apartment grade’ but they scream ‘quality’ to potential renters. Storage features are always important. Cabinet rollouts, pullouts, cutlery drawer and spice organizers are always popular. Adding under-cabinet lighting is also popular.

Natural wood cabinets are always popular. Neutrally painted Shaker doors are also popular. A custom laminate countertop does not cost significantly more than the standard white or almond, but with the right pattern, can both be more durable to wear and look more high end. If your property warrants it, quartz is very popular. Quality hardware and fixtures also make a big difference for a nominal cost.

Refinishing tubs or tub surrounds (such as miracle method) is an inexpensive way to make a bathroom feel new. This is not a long-term solution, but can buy you a few years until your cash flow can afford more extensive replacements upon turnover. Upgraded shower heads are always popular. Color also goes a long way and costs the same as boring white paint. If you can afford it, tile floors are a long-lasting, desirable upgrade in a bathroom.

Get More Out of Your Renovations

Think about using a two or three tone paint scheme instead of just white. A formula of white for ceilings, neutral for walls, off-white for trim gives an apartment a more luxurious feeling. The cost is a little more than painting the whole apartment one color, but the effect can be worth $50 or more per month to the rent.

Pay attention to the motel or hotel industry for design clues – especially in common areas. They spend a fortune on market research.

Think about how you use materials. For example, how you lay your carpet can impact both your initial cost and your long-term maintenance. One method we commonly use is to break up the hallway carpet with contrasting ‘call outs’ at each door. This method not only adds an elegance to the hall and break up the tunnel feeling, it allows for quick and easy replacement of a small section vs. the whole hall should an area be stained beyond repair.

Sturdy entrance hardware gives the apartment a nice feel and helps set the tone that the unit is quality throughout. Try solid doors for interior doors also. In most situations, people are using pressed cardboard doors. Solid doors cost more initially, but ultimately save the company money on maintenance.

Every unit does not have to be the same. It is important to look at each one individually to determine what is absolutely necessary. Typically, you don’t need to plan to renovate 100% of the units during the initial 18 months. Figure about 70%. The balance can be done out of operations as people move.

Protect Your Investment

You need to think about what happens during and after the renovation. Keeping some income coming in during the rehab can be critical to making the project successful. Both your existing residents and potential residents need to see something that will make them want to put up with the inconvenience of construction.

You need to sell the vision. Use carpet samples, color swatches, renderings and any other sales device you can think of to help show people what is coming. Most prospective residents will feel much better about renting an apartment in a community undergoing renovation than simply renting an older class B or C property.

Also, you need to think about who will staff your leasing and management office both during and after the renovation. The manager who ran your property in its former condition may not be right for the new re-positioned property. At a minimum, he or she will need some retraining. People paying higher rents expect higher service. This might mean a higher level of maintenance too. Remember, you’re only as good as your on-site staff.

A properly planned and executed renovation can turn a poor investment into a winner. However, a poorly performed one can bury you just as quickly. Think about every dollar you plan to spend before you spend it – and how you can maximize value with the work you do. Every minute spent on planning can save you hours of wasted time and money.