Rental Property Investor · Member since 2020 · 19 posts · 4 votes
We have a small multi-family apartment building in a prime location. The apartments have historically rented out easily because of the location despite the 70's look of the place. We have a tenant moving out in a couple months. Everything is in working order. My question is should I spend money to upgrade the unit (double paned windows, new flooring, re-do bathroom) if there is not that much upside in rent? It would show better and potentially rent out more quickly, but is it worth the cost if my rent can only increase by about 3%? Thanks in advance!
No but usually upgrades like flooring and bathroom upgrades should have more of an affect than that. Double pane windows get you nothing and certainly aren't worth it, even if you are paying the power bill, in almost every case I've seen solar is a better option than new windows for "energy efficiency"
Why can you only increase the rent 3%? With a turnover you should be able to bring it up more than that, especially if it is under market or newly renovated.
Thanks for your feedback! Usually there are very few vacancies in my area and rents are strong. However recently there seem to be more vacancies and landlords are lowering rents accordingly. Therefore, what may have been under market rent is pretty close to market now. I feel like I need to rehab just to get what I was already charging! I don't want to overprice and have it sit for a couple months. Currently I'm getting $2900/mo. Reno cost would be around 10K.
Is that $10k just to upgrade one apartment unit? That seems really high, but it sounds like that’s what you’re saying so I’ll base my answer off that number.
I wouldn’t spend that kind of money to upgrade the unit if you’re only going to get a 3% bump in rent. It doesn’t pencil out.
Since you say the unit already “rents out easily”, the main benefit to the upgrade really boils down to a roughly $87/month increase in rent. At that rate, it’ll take you almost a decade just to break even (and I’m sure you’re not doing this to break even).
Plus, it’s possible the flooring would need to be replaced again before you reach that break even mark (since most flooring in rentals doesn’t tend to last all that long), which - if you did - would further extend the time it would take you to start seeing a return on that investment.
Now, if it was a scenario where you couldn’t rent it out unless you did the upgrades, or the upgrades could be done considerably cheaper, that might change my answer. However, that doesn’t appear to be the case based on what’s posted.
I would go somewhere in between. I think flooring and paint get the most bang for your buck and could help get you more modern. Kitchens and bathrooms will also add a wow factor but the cost goes way up and the time to get your money back takes much longer. For windows I would be highly unlikely to replace them if they aren’t broken sure they are nice for tenants but if you aren’t paying the electric I wouldn’t worry about it.
Thanks for the advice Kyle. Yes, it's just to upgrade 1 apartment. It would be changing from carpet to durable wood-grained vinyle planks throughout, upgrading bathroom vanity/counter and changing all windows. It could be more like 8K but I just added some cushion. If I try to rent it out the way it is I'm concerned that I won't be able to even get the $2900 I'm currently at. Would you keep as is and drop the rent to 2700-2800 if needed? Thanks!