Renovation to increase apartment rents is a fraught proposition, and is becoming even more worrisome as the vacancy rate has increased for the first time since 2009. This has made attracting tenants more important than ever, since a vacant apartment is the single largest drain on cash flow that a multi-unit owner can have.
However, renovating an apartment is another expense that must pay off in either a rental or an increased rent in order to be worthwhile. While this is true of any renovation directed toward real estate market value, rental apartment renovations are under the same immediate financial pressure as a fix and flip strategy in the residential market. Fortunately, some of the same ideas that apply there can help assure a payoff in the rental apartment space.
Spruce up The Entranceway
Everyone likes to come home, and landlords can maximize the rent on an entire building by making it nicer for every tenant as they walk into the building. Simple landscaping in the front of the building and a clean, welcoming foyer go a long way toward accomplishing this goal. Exterior lighting also makes a more welcoming exterior and adds an element of security. A “dummy” security camera directed at the front entrance can be a very cost effective addition.
Solar Panels on Rooftops
Solar panels continue to fall in price, and adding them to reduce tenant energy expenses commands a higher potential rent. In other words, not all of the cost savings have to be passed on to the tenants. Solar panels also raise the important issue of income taxes, since alternative energy projects are often eligible for tax breaks. These may also include credits on property taxes, depending on the community where the building is located.
Utilize Exterior Wall Space
A well maintained exterior is an important feature of any apartment complex, particularly if the building is located in a higher crime area. All lines for cable and internet services should be properly installed and kept out of sight as much as possible. A building with great visibility may even be an opportunity for renting advertising space on the exterior walls.
Specialize to Tenants’ Needs
Maximizing rents means attracting the ideal tenant to the building. One way to do that is to provide the unusual amenity that the ideal tenant wants. To do this means having a well developed profile of the ideal tenant and knowing what services are, and are not, being provided by rental alternatives in the area. A laundry room, storage space and outdoor patios are all options that a building can offer that will attract a particular type of tenant.
Remodel to Stand Out
Often a multi-unit building will be located adjacent to, or in a complex with, other buildings that have the exact same floor plan for every apartment. This makes it more difficult to command a rent differential for any one apartment. Remodeling to create a unique feature such as a study or nursery may attract a tenant who is willing to pay more for the amenity.
Keep in mind that changes to an individual apartment will bring a possible rent differential for that unit. Changes to the entranceway, or the addition of an outside patio, can command a rent differential for the entire building. While the economic calculation would clearly favor the latter additions, if the ideal tenant requires an interior feature, the math changes and needs to be recalculated.
The key in all these ideas is to know the ideal tenant and the maximum rate they will pay. This keen market insight requires research and diligence. That effort can pay great dividends for the landlord who spends wisely in order to maximize their rents.