Apartment Upgrades that Move the Needle
Adding these features can increase retention and raise rents.
Value-add is hot.
At this point in the cycle, it is harder to make money building or buying pristine, core apartments. But if you can add value through renovation—taking an apartment community from a B-minus apartment to a B plus or an A, there is still potential to make a significant return.
With often limited investment dollars, every apartment owner grapples with where to get the most bang for the buck with upgrades.
The good news is today’s smart home technology can allow owners to make updates that improve the lives of their residents without breaking the bank (or tearing out the kitchen).
Eddie Reiner, Director of Asset Management for Pensam Capital, says his company has been focused on adding technology, such as smart thermostats, Bluetooth door locks and smart lighting. These features cost about $500 and increase rent by $25 a month.
“One of our biggest focuses has been technology and smart-home features,” Reiner says. “These upgrades have been very helpful in aiding renewals and fighting back against the new communities coming online.”
TJ Mudd, a District Manager at Camden, is also a proponent of smart-home features. “There are cool things that have come out,” he says. “We have Wi-Fi thermostats and a Bluetooth systems with built-in speakers.”
The rise of tech does not mean traditional renovations are obsolete. Hardwood floors, bathroom fixtures and fresh paint can still move the needle. Beige was the popular color five to seven years ago, but Chris Pilato, Vice President of Construction and Development for CAPREIT, says renovators are moving toward using more of a grey palette.
Flooring is also a big part of CAPREIT’s rehabs. It can earn $50 to $100 more depending on the market and size of the unit. “We are using a lot of LVT flooring throughout, expect for bedrooms,” Pilato says. “There can be an issue with sound.”
Renovating kitchens is still a big rent booster, according to Scott Wickman, Regional Vice President at Western National. He says apartment owners can fetch rent increases of up to $75 to $100 with basic kitchen improvements, such as countertops, paint and appliances. Complete upgrades, which include such as countertops, paint, appliances, flooring, cabinets and lighting, can net $150 to $200 more in rent per month.
“It is about how you renovate them and what kind of products you are adding,” Wickman says. “Granite for countertops is big thing. Stainless-steel appliances are more relevant today.”
Even in moderate-income apartments, companies are adding solid surface tops. “A lot of property owners see the need to upgrade finishes, especially those finishes which are not that difficult to change,” says Mike Schlegel, President of Bozzuto Construction Company.
New kitchen features, such modular cabinets, shelves and shadow boxes can help owners advance beyond the typical kitchen renovation. “These give you the opportunity to move things around for a more flexible space,” Mudd says.
It is important to keep common areas and exterior areas up to date, but once an owner starts to look outside of an apartment home for major upgrades, the challenges grow, according to Schlegel.
“It is hard to turn a C community into an A community without doing a full gut renovation,” Schlegel says. “A conversion of this nature will often require a full reprograming of spaces and apartment layouts – not just the applied finishes. Trends—with respect to the size of spaces and how they are used—change with time. Bathrooms get bigger, kitchens get smaller. In fitness centers, circuit training is in and weight machines are out. Apartment sizes have shrunk, while amenities spaces have more than doubled in size in the past decade. While the larger, well located projects may be able to proforma the costs to make these changes in order to compete with new projects coming on the market, even these projects will likely be stealing revenue generating space to create the necessary amenities.”