SS68: What Tenant Upgrades Should I Focus On?

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what tenant upgrades should I focus on.

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Talking Points:

When you own a multifamily or single-family property you are going to want to start doing repairs/renovations that your tenants will value (pay you more for) that will increase your cash flow along with the property’s value – but what are these?
The first couple of upgrades I will mention are ones that people will search for when they are searching for places to live online or through an app
- Washer and Dryer Machines IN THE UNIT – if you purchase a property and it does not have hookups; you should add them; depending on the class of the unit and building; I would highly recommend adding the machines as well; typically, you are able to purchase stackable washer and dryer combos for under $1,000; this will usually add $50-$75 a month in income. In smaller C-class properties I will usually add hookups in the basement since there is no risk if it overflows. In regards to water bills; if your tenants pay their own water bills then there is nothing to do; if you the landlord pay the water bill; make sure you are adding on at least $25 per month for water
  - If you have a larger complex, it might be easier to add a laundry room and you can outsource the laundry services to a service that will install machines and split the revenue with you. Make sure you understand laundry contracts before engaging in them and many will carry over to the new owner if you sell. We are selling an apartment complex now and we did not renew a laundry contract and had the service remove their machines and left the laundry room vacant while we sell it so the new owners can use a service they want and they do not need to inherit our laundry contract. This is much more appealing to buyers; also, since they will make money the first day the machines are installed.
- Pet Friendly – This is an increasingly highly demanded feature in rentals with 70% of US households having pets and tenants will pay for it! I would increase the monthly rent for pets and add a non-refundable fee for exit cleaning upon moving in. Make sure that you are saving a portion of the fees you are charging for repairs and cleaning at the end of the lease. In addition for larger properties; adding a dog park is also a relatively easy property upgrade.
- Stainless steel appliances – no one wants white appliances and it is a dead giveaway when looking at property photos when the last time the unit was upgraded. Black appliances are better (and should be in your class C apartments) but stainless-steel appliances have really come down in cost over the past few years and should be added to any property that is B- and above.
- Garbage disposal – this is really a given in B class and above apartments but adding one into a C or C+ apartment will be a feature that many other apartments don’t have
- Granite counters – if you have a B- and above apartment; add Granite; it is not that expensive and meshes well with your stainless-steel appliances – there are also fake granite-looking linoleum counters for your C-class apartments that are really convincing until you touch them
- “Smart” Units are becoming more and more desirable for tenants; the ability to control the thermostat from their phone, Smart USB plugs, smart lightening that allows tenants to control lights from their phones – other smart items you could add for nicer apartments would be smart locks and smart appliances

Fitness rooms – if you have a B class complex; I would suggest adding or revamping the gym; adding online fitness programs as well is a plus like Pelotons; so, people do not need one in their unit

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what tenant upgrades should I focus on. So when you own a multifamily or single family property, you’re going to want to start doing repairs renovations that your tenants will value. AKA, pay you more for that’s also gonna increase your cash flow along with the properties value. But what are these upgrades? The first couple of upgrades I’ll mention are the ones that people will search for when they’re searching for places to live online or through a app. Number one is the washer and dryer machines in the unit. Now, if you purchase a property and it does not have hookups, you should add them. And depending on the class of the unit in the building, I would highly recommend adding the machines as well. Typically, you are looking to purchase a stackable washer and dryer combos for under a thousand dollars.

Charles:
And this will usually add about 50 to $75 a month in income. Now that is a great return on an investment in smaller C-Class properties. I would will usually add hookups in the basement since there is no risk. If it overflows, you have people that aren’t paying attention and in C-Class properties, it’s more prevalent than in nicer properties. In regards to water bills. If you have your tenants pay their own water bills, then there’s nothing to do. If the landlord pay as the water bills, make sure you’re adding on at least $25 per month for water because those bills can get really high very quickly. Now, if you have a larger complex, it might be easier to add a laundry room and you can outsource the laundry services to a service that will install machines and split revenue with you. Now make sure you understand laundry contracts before engaging in them.

Charles:
Cuz many will carry over to the new owner. If you sell we are selling an apartment complex now and we do not renew a laundry contract and have the service, remove their machines and left the laundry room vacant while we sell it. So the new owners can use their own service that they on and they do not need to inherit the laundry contract that we made because it might not be the most beneficial for them, especially if they have a number of different properties, they’re probably getting a better split than just a normal contract that we might get for them. Now, this is much more appealing to buyers also, since they will make more money the first day the machines are installed and that income ’em that they’re gonna make the first day. It’s a great value add for them because that’s gonna go right to their NOI right on day one, pet friendly.

Charles:
This is a huge one. This is increasingly highly demanded feature in rentals. With 70% of the us households, having pets and tenants will pay for it. I would increase the monthly rent for pets and add a non fee for exit cleaning upon moving. Make sure that you are saving a portion of the fees you are charging for repairs and cleaning at the end of the lease. In addition for larger properties, adding a dog park is also a relatively easy property upgrade and it allows you to contain the majority of where animals are on your properties outside. So where they’re going to bathroom and stuff like this with a dog park, you can keep it much more centered. Next is stainless steel appliances. No one wants white appliances and it’s it’s a dead giveaway when looking at property photos, when the last time the unit was upgraded, you know, black appliance are better and should be in your class C apartment, but stainless steel appliances have really come down in cost over the past few years and should be added to any property that is B minus and above, and you’re gonna get more rent for it.

Charles:
And it’s just is gonna look a lot nicer garbage disposal. This is really given in B class and above apartments, but adding one into a C or C plus apartment is a feature that many other apartments don’t have, especially if they’re older. Now, if you have properties that have been recently upgraded in the C class arena, yes, they probably do have garbage disposals, but adding one is easy and I would definitely do it probably between tenants and cuz that’s where you’re gonna be able to really get that rent increase. Grant counters. Now, if you have a B minus and above apartment add granite, it is not that expensive and it meshes well with your stainless steel appliances. There are also fake granite looking loan O counters for your C-Class properties that are really convincing until you touch them. And I’ve seen them before.

Charles:
We’ve used them before. And they’re very nice, but you really want to have granite when you’re getting into BMI and above, or if you’re moving an apartment during your renovations to a BMI and above do it right now, do the cabinets. Even if you just do the cabinet fronts, do the grand countertops and put stain steel appliances in there, you’re going to ultimately get much higher rents. And the return on investment is astounding. So smart units are another thing that are becoming more and more desirable for tenants and an ability to control thermostat from their phone. Smart USB plugs, smart lighting that allows tenants to control lights from phones. Other smart items you can add for nicer apartments would be smart locks and smart appliances. And you probably have already seen smart locks on Airbnbs and different short term rentals, but it’s something that adding them into apartment is something that’s really the wave of the future.

Charles:
And you’re gonna be able to charge more. If you have multiple units, you don’t, don’t have to do all of these in, in every unit, right? As people switch over as, as units, as tenants, leave new ones come in when you’re renovating the apartment or doing upgrades to it between tenants. That’s when you can add some of these smart items or like test out some of these upgrades and see exactly what happens with rents and what you’re able to achieve and see people actually care about in your market or don’t. A lot of these upgrades, like the smart ones, this is gonna be for like a B and above type apartment. I doubt you’re gonna have many people in C class properties that want to pay more for being able to run their thermostat. The last one here is fitness rooms.

Charles:
Now, if you have a B glass complex, I would suggest adding or revamping the gym. And a lot of, a lot of complexes we’ve seen that we’ve walked, they have dated gyms and by revamping ’em of course new machinery and you know, clean it up and new equipment. But adding online fitness programs as well is a plus like pelotons and that people can utilize. So they have an interaction and it’s like going to a gym, but even better. And if it’s on your property, this is saving people. You know, especially if they have like a one bedroom apartment, they are not wasting a bunch of room on the equipment. So it’s a huge plus when I rent that apartment, I always like looking to see if there was a gym, because it was great to have one. I could just walk down to it a couple minutes and I didn’t have to have all this equipment in my apartment. That’s usually smaller than you really want. And this is also another thing too, with pelotons. I don’t have to actually buy one and I can put a little room inside the inside the gym, the fitness room. So people don’t need to put another one in their unit and they don’t have to deal with working around it in their living space. So I hope you enjoyed, please remember to rate reviews, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

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