I'm curious, what are some ways that you or someone you know has renovated their units to force appreciation? How much did it cost? How much value did it add?
Looking to increase my knowledge on this subject!
This is completely market dependent. Kitchens and bathrooms, updated fixtures and flooring will always increase interest in a property, but how much it increases value or rental rates would depend on where you are. My rule of thumb for a rental is that if it doesn't increase the rent or decrease vacancy, I don't do it.
My best advice is to talk to a local property manager and see what the market is demanding and then assess what upgrades you could do. Keep in mind, that in order to force appreciation, you don't actually have to spend dollars (often times you do). If you can simply bring the rents up to market rate, you've increased your NOI which in turn adds value to the building. A super easy one I've used is a utility bill back to tenants. On an 8-plex with a $35 monthly utility bill back in a 7.5% cap area, that's an extra $44,800 in value I've generated ($35/unit x 8 units x 12 months = $3,360 extra annual NOI). Also upgrading fixtures/appliances is always a reasonable way to get rental increases. You can also simply ask your tenants what they'd be willing to pay more for. Good luck!
@Braden Tomlinson It is not always easy to figure that out; and it is not linear. I have a 12 unit; as people have moved out we refurbished the apartments very lightly: new flooring, paint, caulking and fixing a few tiles etc. Really light-2-4k per unit max. We increased the rent 200/mo for 2 beds and 150/mo for 1 beds. They were easy to rent and we might have gotten away with less; and we think rents were under market to begin with. Over 2 years we have upped the rent from 72k gross to 96k.
We did some landscaping, painting, pointed a few bricks, added some safety railing-again very light stuff. New washer dryer in the laundry room and some general repairs; we spent maybe 6k on all that.
It is easy to over improve and how much you do depends on your plan, what you bought, how it was maintained, and what it will take to get to market rent. Anything beyond that is wasted.
Safety issues should always be addressed. ie, steps, railings, uneven sidewalks, etc. Then I like to do things to preserve the building such as caulk and paint, roof maintenance, systems maintenance, trimming back vegetation, etc. Doing things to make the unit more efficient is something tenants appreciate if they're paying the utilities. This can be small stuff like door weatherstrip seals, dual flush toilets, etc. Things that are purely cosmetic we rarely do unless something needed attention anyway. We also utilize energy efficient lighting when we're replacing things. We also always put a ceiling fan in every bedroom. (unless it's difficult to do from a structural standpoint)
As an appraiser the number 1 item we look at is the condition of the kitchen and bathrooms (if renovated or not). Added square footage, additions major renovations are huge. As far as weatherstripping, dual flush toilets etc etc it is completely IRRELEVANT to the FNMA 1025 Appraisal report form and will not really increase appraised value. Renovate kitchen, bath, fix whatever need be, paint, new floor. Add a bath, finish basement, add a deck. These are all important items that increase value. I just did a house where the guy replaced a roof, sprinklers, security cameras and new grass. This might be cool and help (slightly) when he sells the home but it had absolutely no impact on the appraisal. Repair your dishwasher, clean carpets fix roof etc etc these are all differed maintenance items you need to address to help your property from falling into disrepair and depreciating due to wear and tear but will not "increase" your value. If those items are not addressed the property can turn into a piece of garbage...
You cant go wrong with updating kitchens and bathrooms. You can always paint the exterior even if your property is already occupied. You can get creative by adding a wall, door, and a small closet to an extra living room and create an extra bedroom. In my area thats an extra $800 of rent a month. The project usually cost that much. To spot potential projects keep an eye on what 3 bedroom square footage are on zillow. When you see a 2 bedroom with the same square footage you might want to look at it in person. If you're asking how to do these things you would be suprised what you can learn on youtube or those orange homedepot books.
Thanks for the advice everyone! Next step I see is to get more local advice since it seems like this is a market dependent subject.
Be careful because there are limits to how much value you can add. Square feet, layout and location are limiting factors that can cap your value. Easy things like paint, flooring and light fixtures go a long way. Kitchen and baths are more expensive and you may not get the return.
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