How To Renovate An Apartment To Maximize Your Return On Investment: Pictures & Audio Included!
In December of 2017, we purchased a 64 unit complex at the county courthouse for a purchase price of $1,300,000, comprising of one and two bedroom units. As with the majority of our purchases, this acquisition came with several problems, or as the investing community likes to call, value-adds. Trust me, this property had a ton of problems, but at a $20,000 per unit purchase price, it was well worth assuming and fixing these problems.
This property is a typical Mom & Pop class C property that caters to the blue-collar/retail workers. The renovation outlined below is what we perform on all of our C properties.
In this article, it is my goal to focus on our steps to renovate a down unit, what to focus on, how much we are spending on each item, and what type of return we are achieving after renovation is complete.
I have attached pictures throughout to walk you through the process.
The property contained a HUD component, along with a former landlord who was not complying with HUD. We quickly jumped on board and began to fill out the necessary paperwork to certify ourselves with HUD. The other major concern was the number of units that needed renovation.
In the pictures below :
You can see the condition that this one bedroom unit has been left. As we mentioned in the Wheelbarrow Profits Academy training video, it is our focus to return the unit back to its original condition, while focusing heavily on the budget. This unit had significant garbage strewn all around, the carpet was badly damaged, it desperately needed a paint job, the fixtures were outdated and the kitchen needed attention.
Read the AUDIO version of this blog on ‘how to renovate an apartment’:
The renovation process needs to be methodical and consistent. We begin by:
• Remove all of the garbage from the unit.
• Access the flooring to see if it needs to be replaced.
• If carpet can be cleaned, clean carpet. Vinyl flooring used in the bathroom and kitchen.
• In our upstairs garden apartments, we like to leave carpet in the bedrooms for a noise barrier.
• Change any light fixtures that need to be replaced.
• Change any old hardware.
• Change the old wall outlet plates.
• Re-surface the tub if it is bad condition.
• Replace the toilet and vanity sinks if necessary.
• Inspect the bath vanity to see if it needs to be replaced.
• Resurface the kitchen countertop.
• Kitchen cabinets can be painted, or resurfaced, if necessary.
• Paint unit in a two-tone scheme. As you can see by the after pics, the apartment is “popping”.
• Re-inspect the entire unit before showing a prospective tenant.
• Use a freshener in the unit before showing.
As you can see from the pictures taken once the renovation has been completed:
The transformation is amazing, and the budget has not been decimated. This renovation cost us around $2,500, and we are able to rent out this unit for $525 per month. We achieve a rental increase of $75 per month, which totals $900. We will be able to recoup our entire investment in less than three years. Even more importantly, Net Operating Income will increase dramatically.
Here are three tips when showing a unit to prospective tenants:
- Never show a unit that has not been renovated. First impressions are huge, and an apartment that does not show well will be much more difficult to rent.
- Take pictures of a renovated apartment and display them on a computer in the office. If you currently do not have any apartments to show, the prospective tenant can view the pictures. You can also use the pictures for your advertising.
- If possible, turn the office into an apartment. In one of our properties, the office is a two bed apartment. When the prospect walks in, he is walking into his future home.
This is the power of multifamily real estate in action. Multifamily does not need market forces for the property to appreciate in value. As an investor, you will be able to affect the Net Operating Income in a positive fashion, as we have in this illustration, and “force” the appreciation.
Be sure to watch the training video in the Academy for a more in-depth discussion of how to renovate an apartment unit.