Renovations that command the highest rents

14 Replies

Hi All,

I was hoping to hear which renovations on multi-family properties help command the highest rents. As with all real estate, I understand each market is different but wanted to see if there's a universal concept that can be applied to get the most bang out of your buck (i.e. does spending $5K on bathroom repairs immediately command higher rents compared to spending $5K spend on HVAC repairs).

I'm in San Diego (where cash flow is a bit rough) and specifically focused on properties in the class B/C neighborhoods. I've researched the BP website but was unable to find anything on this topic using the keyword search. Thanks in advance for your input.

Creating more bedrooms where legally possible. In Massachusetts, we can finish a basement to create more bedrooms and bathrooms. Need to have an egress for those rooms that are legal (e.g. oversized window, walk outs). Some floorplans have dining rooms that can be closed off as another bedroom with addition of a closet. In non-coastal parts of San Diego HVAC may be the way to go where.

Bob Couture, Real Estate Agent in MA (#9534609)
413-314-3583

Understand that rents are not entirely within your control.  If you are in a B/C neighborhood, you will have B/C tenants and get B/C rents no matter how much you renovate.

I fully renovate everything.  But that is to reduce maintenance, force some equity growth and get houses rented faster.

People will not pay $1000 for an apartment in a neighborhood where similar apartments are available for $800 because it has a nicer bathroom.  They just won't.

Now, what might actually increase what a unit is worth?  Certainly more bedrooms as Bob suggests.  Off-street parking if it isn't already available.  Other than that?  I'd focus on renovating to reduce expenses (repairs and vacancy) rather than to increase rents.

Rents are based about 50% on location, 40% on the size of the unit, and 10% on everything else combined.

@Bob Couture - great piece of advice. I will keep this in mind.

@Richard C. - thanks for the breakdown on how rent allocation is viewed. You echo my thought that it makes no sense to overdue a multi-family rehab if the market won't get you higher rents. Knowing your market is crucial.

I also over update everything only because I don't want any calls for a long time.  I don't make money fixing stuff that needed to be fix during the remodel..  I make it by getting the next house completed. 

of course,   that does not include new ac and furnace only because the rehab is in progress. 

Consider who your target tenant is and what other options they may have available.

For example, many people living in apartments may lack secure storage space for things like bikes, surfboards, or just "stuff". Renovations that provide this can drive value.

In one property, we intend to turn (1) 2 car garage into (1) 1 car garage + a spacious workshop/storage at the first turnover - I know I can net about $150 additional / month with that change..

@George P. - great approach to get everything rehabbed right out of the gate. Two benefits I see. One is this drives up your NOI with less expenses. Two is a great night sleep knowing you've minimized tenant phone calls for sudden repairs.

@Justin R. - very wise to know what your tenants want. Your example of creating extra storage space is awesome. Storage is an added benefit in San Diego since we love our surf!

@Casey Murray I hate to suggest anything that almost no one on this site likes to do but I'd visit my competition and look at the amenities they offer.

Some of my units have to have ALL the upgrade appliances, others don't need anything beyond a kitchen "triangle" Refrigerator - Sink - Cooktop as long as there is parking.

@Mike Hurney - your advice makes complete sense. After reading The Millionaire Real Estate Investor, I'm understanding the importance of going shopping for real estate and seeing what amenities the market demands and what your competition is providing. Thanks for the feedback.

Originally posted by @Bob Couture :

Creating more bedrooms where legally possible. In Massachusetts, we can finish a basement to create more bedrooms and bathrooms. Need to have an egress for those rooms that are legal (e.g. oversized window, walk outs). Some floorplans have dining rooms that can be closed off as another bedroom with addition of a closet. In non-coastal parts of San Diego HVAC may be the way to go where.

 This advice really depends on how many bedrooms we're talking about.

If we're talking about converting a 2 bedroom into a 3 bedroom, then it makes sense to try to create that additional bedroom.

But, if your place is already has 4 bedrooms, then I wouldn't try to create another bedroom and try to squeeze in 5 bedrooms. 

Honestly I have found that areas have ceiling based on bedroom, size and location area. If you are at the top of the rents in that area it will be REALLY to expand. If you are not than I would look at what the difference bwteen you and those rents . If you can expand size bathrooms, bedroom etc to be comparable I would.

Honestly I have found that clean, nice, and simple goes along way. That to get the extra $50 often times insn't worth it compared to the cost associated.

@Casey Murray I have to agree with @Elizabeth Colegrove that most places have a ceiling according to the area and size. However, I have found in my units that are nicer with updated kitchens and baths I tend to get better tenants who stay long term and take care of the place. 

A few times I have charged tenants $25 a month per pet. In the Midwest, finished basements can also command a bit more rent than unfinished.

@Elizabeth Colegrove and @Carrie Giordano - That makes sense not to invest towards an extra room if you can't get increased rents because of a ceiling on rooms in that market. Quality units attract quality tenants. Thanks for the input!

Here's an old thread with basically the same topic:

http://www.biggerpockets.com/forums/52/topics/6679...

And in that thread, you will see my answer. @Richard C. and 

@Mike Hurney seem to have the same basic reasoning as what I posted. There is a market rent, and there are certain must have features and amenities needed to get that rent. Some extras might fetch more rent, but in many cases tenants would rather not pay anything extra. 

@Steve Babiak - thanks for the providing the thread, that was great to read through. My take away is that every market will react differently to certain features and amenities. 

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