Upgrades that your residents will love (and pay you for)
There is no faster way to freshen up a property and bring new life than to upgrade its look and feel. Small changes to the appearance of the property can attract more high-quality tenants and have them paying more to live there. If your property is starting to look a little dated, it’s time to start looking at small enhancements– upgrades that your tenants will love, and even pay you more for.
The key is knowing what upgrades your tenants will pay more for. You see, there are many enhancements that you can do to a property that will improve the property, but they won’t necessarily deliver you a higher rental rate or return on investment. For instance, enhancements like replacing the roof or plumbing. These upgrades will help you protect your asset from decay, but tenants probably aren’t going to pay you more to live there just because you did them.
To figure out the improvements that your tenants will love and pay you more for, you need to know your tenant base. Who are they? Do they pay for a gym membership? Do they take their laundry to a Laundromat? Do they have extra disposable income or are they just scraping by to pay the rent now? You would treat a property with each of these types of tenants differently.
You need to know what they want that you aren’t already delivering. More importantly, you need to know what they want and what they will pay more for if you do them. You need to know your tenant and your competition. Focus on enhancements that will improve the marketability of your apartments from your tenants’ point of view.
For instance, if you have an older property in an area where tenants are very price sensitive and just want the biggest unit for the lowest price, you will do fewer upgrades. You might focus instead on paint or on enhancements that will protect the asset, like that new roof or heater.
On the other hand, if you are in an area where your tenants have more disposable income and expect more amenities, you might consider doing bigger upgrades. For instance, they might pay more for stainless steel or black appliances, brushed nickel fixtures, vaulted ceilings, or even another amenity like a big fire pit. You might even consider enhancing the gym equipment so your tenant can spend that gym membership money on your property instead of the health club down the road. Not only can these upgrades give you a competitive advantage over other properties, they can help you grow your income as well.
A lot of times when we consider an upgrade we will analyze the market and tenant base to determine if we can raise rents by doing it. If so, by what amount and what will be our return on investment. Our rule of thumb when considering upgrades is, will the enhancement allow us to raise the rent by at least 1% of the cost to do it per month (1% rule)? If we can raise rents by at least 1% per month, we make the upgrades. If not, we look at other options the tenant might like better and be willing to pay for. We’ve found 1% of the upgrade cost per month to be a good baseline measurement to use, although it shouldn’t be the only consideration.
So, before you go out and start upgrading your property blindly, do your research. By knowing your tenant base and prospective tenants, their expectations and their wish list items, you’ll make sure to do the right upgrades – enhancements your tenants will love, but more importantly, upgrades they will pay you for (and YOU will love that).