Although the United States is a relatively young country our housing stock is aging, the multifamily housing stock included. Usually, acquiring existing multifamily properties, regardless of age, is less expensive than new construction. In other words, you can buy property for less than replacement value. This makes interior upgrades an important part of staying competitive.
For smaller multifamily assets (those under Five Million Dollars) almost two-thirds of the market is driven by 1031 exchanges. Transaction volume had plummeted with the extensive volatility the world has experienced across financial markets making mortgage financing more difficult. (Stronger underwriting requirements will be positive for the entire industry in the long run).
That said, an older multifamily property purchased today will likely require updating in some manner to allow the asset to continue as a competitive property in its marketplace. The following are some upgrade suggestions that won’t break the bank while showing your customers and potential customers that you are a proactive owner.
First and foremost; cleanliness. It seems so simple, but this one category is an on-going aspect of running a quality multifamily property. Common areas, parking lots, and windows should not detract from the experience of coming to or living on your property. Consider as a general rule of thumb; one man-hour of labor weekly for every ten units for general pick up and presentation (excluding normal landscaping upkeep).
Interior Upgrades. Considering every year there are dozens of new products with hundreds of interior uses, find one or two that work for your specific multifamily property. Do not do what the “Jones’ do”. Do not do what you cannot afford to do. While you are competing against nearby multifamily properties, you are competing more specifically against multifamily properties of similar age, condition, and price point. Here are just a few examples of low-cost interior upgrades:
- Quality Paint and creating contrast. While fresh paint is good, some color contrast with fresh paint is better. Consider adding a single accent wall to interiors with an off-set yet compatible color (offset to the existing color scheme). Be consistent with the color scheme and finish. Unless you are attempting to create an art deco look, earth tones and soft pastels work best. For product, stick with one name brand. This assists greatly with maintaining color match and quality level. Professional painters have strong preferences on where to use glossy, semi-gloss, and flat. Consult your local professional.
- Fixtures: Flooring – use an “eight-pound” carpet pad rather than six pounds. Granted, flooring is not a low-cost upgrade. But, before automatically replacing existing carpet (because old doesn’t mean worn out), consider replacing existing pad with new eight-pound pad versus the “cheapest pad you can find”. While I can’t put a specific value on this, the cost differential is nominal and the increased longevity in carpet is noticeable. I’m not quite sure how to measure “bounce” but more often than not it is noticeable. We have in the past kept ten-year-old carpet but replaced the underlying pad with positive results. Granted, the carpet had some remaining life. This doesn’t work with the 1970’s shag.
- Fixtures: Floating Tile. Using vinyl, or floating tile, or a similar laminate is not inexpensive – but consider the cost/benefits of using this product versus carpet when carpet replacement is necessary. I submit that the cost of installing a floating tile floor is about the same as installing carpet. The difference being carpet may have a 5-7 year life whereas tile will provide substantially longer wear. Therefore, the actual costs of a laminate floor are less based on increased longevity and lower lifetime maintenance expense.
- Fixtures: Lighting. Just about any lighting fixtures over ten to fifteen years old will show signs of looking dated. Consider the look and operation of the microwave in your home today and compare it to one purchased in the 1990s. There’s just no comparison. Sometimes a single light fixture can change the entire look of an apartment. Consider upgrading the kitchen and dining room first. Make sure if you decide to change out lighting fixtures that you have a solid supplier. There are few things more frustrating than starting an overhaul and having your supplier go bust halfway through the project.
- Fixtures: Plumbing. Water-saving will become ever more important as utility costs increase. Change or install low-flow showerheads and low-flow aerators on all sinks (including kitchen sinks). Multiple name brands offer products reducing water flow from 2.5 gallons per minute down to 1.5 gallons per minute. This is a significant saving when considering it is applied to hundreds of units. On faucets; which way to go here? Do you buy the $79 Moen faucets or the $25 throw-a-ways? We buy deals for a long-term hold. So our perspective is to have consistency in products whenever possible. So if a property has a single brand name faucet we stock the same brand along with replacement parts. Anytime you can replace a 3.5-gallon flush with a 1.6-gallon flush this can save a few penny’s each day per unit. It all adds up!
One of the advantages of all of the recommendations above is that they can be implemented over time. Consider starting with water-saving devices. In a 100 unit development, installing ten low-flow showerheads per week will take ten weeks to complete. This spreads the costs of material and labor over time while upgrading fixtures and saving on utility costs. Every little bit helps increase Net Operating Income (NOI). Every increase in NOI increases value.