ROI: Understanding Your Remodel
In the article published last week, we talked about some of the Pros and Cons of remodeling your rental units. This week, we'll talk about the basic remodel, and more specifically, how it translates into a return on investment for you.
The standard remodel is generally a cosmetic facelift. Once you get into plumbing, electrical, HVAC, and framing, you're officially into a more complex remodel where you need to know how to navigate the permitting process, and other city bureaucracy.
Your standard remodel will come in three different tiers, based on income levels and quality of rental. Since I'm an expert on lower income apartments, I'm going to focus on that tier of a remodel.
When you're talking about a rental portfolio, the ability to raise rent is your bread and butter in terms of receiving any return on your investment. Raising rents however, is an incredibly emotional, and psychological game that you need to play with the rental market. Understanding the first impressions you make on tenants, where their eyes are drawn to, and where their attention lingers, is the #1 key to getting the highest amount of rent for your unit.
Your basic apartment renovation should include the following things: (Ranked in the order of highest ROI to lowest ROI)
#1. Daylight Bulbs
Cost: $20 (16 bulbs)
ROI: Extremely High
Everything is about first impressions. Lighting is something nobody notices... until it's not there. Many apartments still have the dated, yellow lighting that doesn't do a very good job at illuminating the space, and makes the entire apartment feel aged. Updated everything to natural daylight bulbs will make the space seem larger, newer, and provide you the light you need to showcase your larger investments, like your flooring. You could have the nicest apartment in the world, but if the lighting sucks, you can't appreciate it. As photographers always say "Lighting is everything."
#2. Ultra-White Paint (Semi-Gloss)
Cost: $300 (10 Gallon Ultra-White with Brushes, Tape, Masking, etc.)
ROI: Extremely High
Paint is a two for one, and most people don't ever think about the second benefit. While paint won't be the very first thing a tenant notices when they walk through the door, it will be a consistent theme that frames the way they subconsciously view the apartment throughout your whole showing.
Ultra-White paint is timeless, clean, and makes your apartment seem a whole lot bigger than it may actually be. It's also the easiest color to touch up, so that you do not need to repaint the apartment each time you have a new tenant. Paired with your new natural daylight bulbs, your apartment is going to seem very large, and very bright.
To reap the secondary benefits, you need to know that you should only ever use Semi-Gloss when you paint your new apartments. Semi-Gloss paint actually resist staining, and scraping, much better than flat, and eggshell pain sheens. This makes your coat of last much longer, and increasing your return.
#3. Floating Vinyl Plank Flooring
Cost: $2/sq ft. ($1000 for a 500 square foot apartment)
ROI: High - Extremely High (Depends on Management)
Flooring IS the very first thing a tenant sees, and processes, when you open the door. Everyone naturally looks down when they step through a door way. What they see, will subconsciously pre-condition their mind. With LVP (Luxury Vinyl Plank) on your floors, they're being told "This is a nice place."
First off, Vinyl Plank is incredibly easy to install (Unlike many other types of flooring). Anyone can do it, and you don't need any power tools. It's impact resistant, scratch resistant, waterproof, and for most people, it's completely indistinguishable from wood. It had truly come a long, long way from what it used to be. Where carpet will need to be replaced every three years, LVP will last you 15 - 20 years.
Secondly, installing this flooring, you open yourself to massive revenues that the vast majority of landlords are closed to. Pet friendly rentals. When your flooring can't be destroyed by pets, you can charge 10 - 20% more rent for the same exact unit. Skyrocketing your cashflow, and your equity.
#4. Formica Countertops (White Granite)
Cost: $119 (Standard Drop In Formica)
ROI: Medium - High
While granite counter tops are always a plus, after you deal with the increased cost, transportation, and installation, they just generally aren't worth installing in a low - medium end apartment. However, whereas most of these apartments don't have stainless steel appliances or fixtures to hold a tenant's eye, you have to improve something. Formica countertops are an easy, and cheap way to install something that looks nice, like granite. They're really pretty inexpensive, easy to install, and have a good lifespan. Having these nice countertops installed will help seal the deal. It plays a huge role in the mindset of your prospective tenants.
Cost: $88 (Project Source Toilet)
Super nasty, stained black, grimy toilets are a huge turn off to a tenant. When you can clean the old toilet and make it shine, great. However, it the toilet is aged past a good cleaning, just spend the money on a new toilet. It really makes the whole apartment seem cleaner. An old grimy toilet makes the apartment feel cheap, and trashy. Plus, most major water issues that you aren't aware of originate around a bad seal in the toilet ring. Replacing the toilet provides you an opportunity to replace the ring, and do some preventative maintenance.
#6. Baseboards (Standard 3.5 Inch)
Cost: $15 per 12 feet
Installing your flooring will never be pristine. You will always have a little bit of a gap between your floor and your wall. You can fill it in with caulk... but that's not great. You could use quarter round, but it looks cheap, and dated. Using your standard, inexpensive 3 1/2 inch baseboards can REALLY tie an apartment together. They're fairly easy to install, as long as you have a miter saw, and really give your apartment an upscale, classy feel to it. People are willing to pay for that feel.
#7. Knobs & Hinges (Match to your Sink)
Cost: $6 - $10
In almost every apartment rental you walk into, you'll see old painted over hinges, and knobs on the cabinets. For less that $10 you can update them with brand new hardware, and you would be really surprised at what a difference it makes. While you may not see any revenue from this, if it becomes the difference between getting a lease signed and not, then it's definitely worth your time and money.
#8. Drawstring Blinds
When you don't provide blinds for your tenants, you end up having a trash apartment complex because everyone ends up hanging blankets and sheets over their windows for privacy. If you provide tenants with drapes or curtains, they either get destroyed and stained, or they get taken down because it does not match the rest of their belongings. Providing them with these drawstring white blinds already installed gives the tenant privacy, and you a clean looking complex... which helps you rent more apartments.
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