8 Reasons Why You Should Upgrade Your Rental Units
The types of properties you hold in your portfolio as a real estate investor are very important. In addition to appreciating in value and adding to the diversification of your holdings, a rental property has the ability to generate income in real time, putting cash back in your pocket.
However, serving as a landlord is quite different than simply owning property. Maintenance, responding to renter requests, and occasional upgrades necessitate time, money, and attention, requiring significant effort on your part. Even if you outsource the day-to-day management to a third party, there’s still plenty to do as the property owner.
The thought of sinking more money into your rental properties may be hard to stomach – after all, an increased investment means lower profits in the present – but there’s a lot to be said for the benefits of renovating rental units. If you’re considering making functional or aesthetic changes, from new floors to upgraded appliances, taking the plunge and making key updates can have big effects on your ROI.
Charge Higher Rental Rates
Want to charge more in rent? Of course, you do. Luckily, the logic in upgrades is simple: the better your rental units are, the higher you can price them.
Theoretically, it’s possible to price your rental units at just about any point you’d like, but if you price your rental higher than the going market rate, you’ll have a harder time finding renters willing to pay the rent. In areas with limited rental availability, it’s easier to rent out sub-par spaces. However, in a competitive rental market, even if renters like your location or floor plan, they may be turned off by an outdated appearance or old appliances and can easily look elsewhere for a more upgraded unit.
If you’re trying to increase rents or would simply like to raise your property to meet local standards, a few minor upgrades, like a dishwasher, new countertops, or crown moulding, can bump up monthly rates by a few hundred dollars each month. In a building with multiple units, these incremental increases can really add up, boosting annual revenue by many thousands over the course of a year – in short, recouping your investment multiple times over.
Save Money Over Time
If you’re holding off on upgrades due to the high costs, you’re not alone. When surveyed, a majority of landlords cite expense as a key reason to delay cosmetic renovations, choosing instead to focus on things that need urgent repairs in order to maintain functioning.
It’s easy to understand a real estate investor’s hesitation – a few units’ worth of upgrades can easily amount to tens of thousands of dollars – but making changes now can actually save you money in the long run.
Take, for example, a rental unit with old appliances. Yes, everything is still ostensibly usable, but renters would much rather see an improved look and feel. As an investor, it can be hard to justify these expenses, but taking action now can save you a complete renovation later. Replacing appliances can be done in a day, but if you wait too long to upgrade, an issue with an old dishwasher or refrigerator may cause water damage that necessitates more extensive renovations, requiring you to pull a unit offline for days or even weeks and costing you rental income in addition to the cost of repairs.
Opening your wallet to make these kinds of upgrades may be more expensive than you bargained for, but keeping units consistently up to date will make a big difference in both rental rates and turnover.
Attract Better Renters
Apartment renovations can increase your selectivity in the rental market, increasing the caliber of individuals who call your properties home.
While there isn’t a perfect correlation between inherently better renters and higher rents, a higher price point allows you to be more selective in choosing your tenant. Instead of accepting anyone who walks through the door because you’re desperate, expensive rents and nicer units mean you can work to find a right fit for your space – not just an easy answer.
High budget renters can still be loud or messy or break things, but they are more likely to pay rents on time, care for their units, and avoid damage that could result in penalties or evictions. In essence, higher prices both increase revenue and simplify management, saving time and money.
Improve Screening Processes
It’s not uncommon to see landlords and investors utilizing extensive screening processes prior to renting out an apartment, like credit checks, reference checks, and background checks. If you haven’t been able to gain traction with these tactics in the past, a nicer unit in higher demand may help you break through that barrier.
When you’re able to offer a superior rental unit, you’re more likely to work with prospective tenants happy to jump through your hoops. Those with the budgets for nicer properties understand that a thorough screen is a necessary part of the process and are happy to provide the information you need to separate worthy renters from unworthy ones.
The nicer your property is, the more desirable it will be and the more renters will want to live in it. With updated, well-maintained rental units, it’s much easier to screen those interested in your property in order to ensure that your building is full of responsible renters with the means to pay on time.
Increase Turnover Speeds
In the wide world of rentals, turnover means a lot. Each day your units go unfilled is a day of rent you aren’t collecting. When you’re looking to increase the returns on your investment, slow turnover between tenants means a serious loss of income.
Desirability is a major feature in lessening the gap between tenants, and minor upgrades can go a long way in keeping your properties exciting and enticing within the local market. When you have features renters want, like dishwashers, in-unit laundry, hardwood floors, or access to parking spaces, they’re more likely to jump on open units whenever they become available, thus reducing your turnover times.
Additionally, when you keep your units up to date, there’s less maintenance required in between tenants. A coat of paint or some updated flooring is a quick fix, putting units back on the market again in a matter of days. A full floor to ceiling remodel, however, is not, costing you a week or more in potential income. The more you do now, the less you’ll have to do later.
As a real estate investor, your main concern is your profits. However, your reputation as an investor should also be a priority, especially if you plan on purchasing additional property in your geographic area.
Launching a new rental property or purchasing an existing property and putting tenants through a change of ownership can be trying, especially when you don’t have a reputation to fall back on. In this scenario, all you can do is hope that those who rent with you will be willing to trust what you have to say about yourself, including your abilities as a property owner.
With an established reputation, it’s much easier to expand your portfolio and quickly attract renters to your new or upgraded space. And in order to build a positive reputation, you need apartments that tenants want to live in. Upgraded units with all the latest bells and whistles aren’t the only way to get a good reputation – acting as a legitimately good landlord carries significant weight too, of course – but desirable units can say a lot about your priorities, including the value you give to tenant satisfaction.
Make Financing Easier
Do you see yourself purchasing more rental properties in the future? You’re not alone. Many property investors go on to buy additional units, either to add to or to replace the properties they already hold. As an untested investor, it can be hard to convince a bank that you need a loan, but once you have a successful history to describe to the bank, you should be able to finance future acquisitions more easily.
When your reputation in the industry is positive – and your financial statements can back up what the community has to say about you – securing lending will become significantly easier. Banks and other lenders like to see financial statements before making lending decisions, and strong performance in the current rental market, including a steady stream of income and low expenses, can help significantly.
“Low expenses” doesn’t mean “no expenses,” of course; putting money into your properties won’t hurt your lending eligibility if the benefits you can reap from your updates result in increased revenues. In fact, leveraging income to increase revenues is a positive factor in the underwriting process, helping you to secure ample financing with affordable interest rates for your future real estate endeavors.
Improve Occupancy Rates
When it comes to rental property, there’s no hiding a bad place to live for long. With dozens of apartment review sites online and the intrinsic power of word of mouth, if your properties are outdated and lacking in quality, it won’t be long before everyone in your area knows about it.
If you want to keep occupancy rates up and create a solid base of long-term renters who love what your property has to offer, the little advantages that work to raise rents and increase desirability can be very effective at keeping users in their units. When tenants are happy and have no major complaints with a property, they’re likely to continue living there, providing guaranteed rent checks every month.
As the adage goes, you have to spend money to make money, and rental properties are no exception. If you want to create a positive environment full of renters who are pleased with their living situations, the right upgrades can make all the difference. The more value you can add, with both home amenities and aesthetic improvements, the happier your renters will be – and the less likely they’ll be to leave.
Operating a successful rental property is deceptively challenging, especially for large buildings in popular areas. Knowing when to upgrade, however, can be a valuable skill, providing a great way to maximize your investment, increase returns, and see successful business for years to come.
Scott Clift is a licensed real estate broker with Westpark Loans. He has been in the real estate industry since 1994. His team of seasoned professionals specialize in providing real estate loans for investors and other self-employed individuals. When you are ready to invest in real estate, call Westpark Loans to secure your financing at (844) 574 LOAN or by visiting westparkloans.com.