{"id":113601,"date":"2019-07-23T17:13:14","date_gmt":"2019-07-23T23:13:14","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=113601"},"modified":"2021-03-16T14:55:09","modified_gmt":"2021-03-16T20:55:09","slug":"real-estate-rental-value-add","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/real-estate-rental-value-add","title":{"rendered":"How to Do Value-Add Renovations Without Disrupting Tenants"},"content":{"rendered":"<p>A lot of people are getting involved in multifamilies these days, and that&#8217;s because <a href=\"\/renewsblog\/2013\/04\/09\/how-to-buy-a-small-multifamily-property\/\" target=\"_blank\" rel=\"noopener noreferrer\">multifamily investments can be very lucrative<\/a>. The way that multifamilies are lucrative is in a value-add play.<\/p>\n<p>A value-add play is where somebody buys a multi, and let\u2019s say, the average rent per unit is $700. This price per unit isn\u2019t bad, but maybe the market\u2019s gone up, you\u2019ve seen a lot of appreciation in rents, and maybe there are rundown, older apartments that could use a facelift\u2014they haven\u2019t been touched in 20 or 30 years.<\/p>\n<p>So, you realize I can take that $700 up to $800 or $850. Think about that. A $150 bump per unit times however many units you have (let\u2019s say, it\u2019s 50) times 12 months, that adds up quick! That can be a very, very lucrative increase. And that rent increase flows back to your property value, making your property worth more.<\/p>\n<blockquote><p><em>$150 rent increase per unit x 50 units x 12 months = <strong>$90,000 increase in income<\/strong><\/em><\/p><\/blockquote>\n<p><strong>Some quick math:<\/strong> Say this property has a 7 percent <a href=\"https:\/\/www.biggerpockets.com\/blog\/cap-rate-real-estate\" target=\"_blank\" rel=\"noopener noreferrer\">cap rate<\/a>, which is a correlation of the value of the property based on how much money the property makes after it pays expenses. If I divide that $90K by a 7 percent cap rate, it shows how much I\u2019ve increased the property\u2019s value.<\/p>\n<blockquote><p><em>$90,000 increase in income \/ 7% cap rate = <strong>$1.28 million property value increase<\/strong><\/em><\/p><\/blockquote>\n<p>This post is not meant to be a numbers post though\u2014it\u2019s not a deep dive into numbers. What I&#8217;m showing you is why people who do value adds do it. It\u2019s because you then increase the property value significantly. And they can recapture some of that through refinance or recapture that from a property sale\u2014whatever that may look like\u2014all by <a href=\"\/renewsblog\/2013\/01\/04\/how-to-rent-your-house\/\" target=\"_blank\" rel=\"noopener noreferrer\">raising your rent<\/a> 150 bucks.<\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/czSmY-cvK_0\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Sounds pretty simple, right? But you&#8217;re going to have to create an environment where your tenants who are currently paying $700\/month are going to be willing to pay you an extra $150. What you have to do is create a good value-add program. The question today is how do you do multifamily renovations without causing much tenant disruption? Well, it\u2019s not easy. But it is possible.<\/p>\n<p>Here are some value-add options.<\/p>\n<h2>How to Do Multifamily Value-Add Renovations Without Disrupting Tenants<\/h2>\n<ol>\n<li>\n<h3>Exterior Renovations<\/h3>\n<\/li>\n<\/ol>\n<p>This includes adding paint, flowers, shutters, etc. It\u2019s giving a facelift to anything that\u2019s outdated. Find ways to get more use out of common areas. Tenants will love that! They go to work, come home after, and the exterior\u2019s been painted or you\u2019ve built a playground for them or you\u2019ve put some window shutters on. And if your apartment building has some common areas, meaning hallways and things like that, renovating those common areas is definitely something you can do without very much tenant disruption.<\/p>\n<p><strong><em>Related:<\/em><\/strong><em> <a href=\"https:\/\/www.biggerpockets.com\/blog\/81906-2\" target=\"_blank\" rel=\"noopener noreferrer\">12 Creative Ways to Add Major Value to Apartment Buildings<\/a><\/em><\/p>\n<ol start=\"2\">\n<li>\n<h3>Interior Renovations<\/h3>\n<\/li>\n<\/ol>\n<p>These are admittedly the most challenging renovations with tenants in place, but they are still very possible with the right plan and team. This type of renovation could include painting or replacing cabinets, new appliances, new floors, new kitchens, and new light or sink fixtures\u2014just a general modernization facelift on an apartment.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-98569\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/04\/5000-renovation.jpg\" alt=\"5000-renovation\" width=\"702\" height=\"336\" data-wp-editing=\"1\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/04\/5000-renovation.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/04\/5000-renovation-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><strong>Here are a few ways you can do that:<\/strong><\/p>\n<ol>\n<li><strong>Disturb tenants.<\/strong> Go to all your tenants and say, \u201cHey, we\u2019re going to be asking you to move.\u201d The strategy is to \u201ckick them all out,\u201d either by <a href=\"https:\/\/www.biggerpockets.com\/blog\/evicting-tenant\" target=\"_blank\" rel=\"noopener noreferrer\">eviction<\/a>, not renewing leases, or something else. So, then you\u2019ll move everybody out, renovate the units, do a big bump on rents, and <a href=\"\/renewsblog\/2013\/01\/27\/tenant-screening\/\" target=\"_blank\" rel=\"noopener noreferrer\">put new tenants in the property<\/a>. Keep in mind that, with this strategy, you\u2019ll have to be able to weather the storm of no one paying any rent during the renovation period.<\/li>\n<li><strong>Roll out renovations. <\/strong>Start renovating units one by one in bite-sized chunks. You may have to incentivize in this instance. An incentive program might look like you going to 10 percent of your population at a time and saying, \u201cHey listen, we\u2019re going to be renovating this unit. We\u2019d like to offer you a full refund of your security deposit\u2014no questions asked\u2014if you\u2019re going to be moving out.\u201d Alternatively, you could offer a discount on the last month\u2019s rent or pay them some money to get out. These are strategies to use if a property is fully occupied. But once you\u2019ve done your first iteration of units, you can go to the next option.<\/li>\n<li><strong>Move to renovated unit. <\/strong>Once some of the units have been renovated, you can offer tenants the opportunity to move into one of those. Ask the remaining population of renters to tour the new units. Ask them, \u201cAren\u2019t they great? Wouldn\u2019t you love to pay me this new rent amount?\u201d Or if they need more incentive, discount them for the first few months. Sometimes <a href=\"https:\/\/www.biggerpockets.com\/blog\/2016\/07\/30\/how-to-be-a-landlord\/\" target=\"_blank\" rel=\"noopener noreferrer\">landlords<\/a> even mandate this move. Check with your local landlording laws. This has never worked for us.<\/li>\n<li><strong>Menu option. <\/strong>Here\u2019s how the menu option works: You give your tenants a menu-style list of upgrade options they can choose from. Let\u2019s say a tenant\u2019s lease is coming up. You can let the tenant know you\u2019re going to ask for a small rent increase, but in exchange for it, I\u2019m going to create a better unit for you. For $50 more a month, I will replace your appliances, change out your floors, change all your light and sink fixtures, give you washer\/dryer hookups, install ceiling fans in the bedroom, etc. You could also offer them multiple menu items for a higher rent increase, but at some point, it\u2019ll make more sense to just move into one of the new units.<\/li>\n<\/ol>\n<p><strong><em>Related:<\/em><\/strong><em> <a href=\"https:\/\/www.biggerpockets.com\/blog\/affordable-ways-to-add-value-to-your-rental-property\" target=\"_blank\" rel=\"noopener noreferrer\">5 Affordable Ways to Add Value to Your Rental Property<\/a><\/em><\/p>\n<p>So, the first option isn\u2019t great, but sometimes it has to be done to get the value-add done. The other options are more so what I wanted to discuss here. We find that a hybrid of the last three is really what works best for us when renovating an apartment complex. It can even be a win-win for both you and the tenants who stay.<\/p>\n<p>I hope this helps you guys. Have a great and profitable week!<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/store\/rental-property-investing-ebook\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-94639\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/12\/rental-property-investing-book-ad.jpg\" alt=\"\" width=\"800\" height=\"130\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/12\/rental-property-investing-book-ad.jpg 800w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/12\/rental-property-investing-book-ad-300x49.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/12\/rental-property-investing-book-ad-768x125.jpg 768w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><\/a><\/p>\n<p><em>What other renovating strategies have you heard about or done? I\u2019d love to hear from you!<\/em><\/p>\n<p><strong>Leave your suggestions in the comment section below. <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A lot of people are getting involved in multifamilies these days, and that&#8217;s because multifamilies can be very lucrative. The way that multifamilies are lucrative is in a value-add play, often through renovations. But how can you renovate a property when there are tenants living there? I&#8217;ll explain. <\/p>\n","protected":false},"author":1673,"featured_media":113602,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5183],"tags":[],"class_list":["post-113601","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-landlording"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/113601","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1673"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=113601"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/113601\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/113602"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=113601"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=113601"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=113601"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}