Renovating a multifamily unit can drive up profits by bringing in new tenants and/or enabling building management to raise rental prices. However, they can also have the opposite effect, driving current tenants away and putting off new ones. Seasoned multifamily investor Joe Fairless, the founder of Best Ever Commercial Real Estate Podcast and co-founder of a firm that has managed over $100 million in multifamily renovations, offers insight to help developers make smart investment decisions.
First, Joe Fairless notes investors should carefully research the neighborhood and current migration trends. It is important to identify the target audience that is most likely to rent a unit in the complex to know what type of renovations would be the most appealing to this audience. If the area attracts families with kids, family-friendly amenities such as a playground or pool may be in order. For a multifamily unit designed to attract senior citizens, renovations such as carpeting and grab bars in the bathroom may be the best bet. At the same time, investors have to look not only at current circumstances but also at future ones. Planned developments, Fairless notes, can drastically impact a building’s value and/or appeal.
Joe Fairless encourages all investors to consider the benefits of energy-efficient upgrades and renovations. Energy-efficient renovations lower tenants’ energy bills, reducing turnover as tenants can save money even if rents are raised in the future. Furthermore, energy-efficient renovations add value to the complex and can give a developer access to federal tax breaks. Section 179D tax breaks are particularly attractive, as investors can deduct up to $1.80 per square foot by energy-efficient lighting, heating, and ventilation improvements.
Finally, Joe Fairless reminds investors that even small exterior improvements can make an outsize difference. Keeping the grass trimmed, planting attractive flowers and bushes, and sweeping the sidewalks boost a development’s curb appeal and can be just as effective in bringing in new clients as expensive renovations. People want to feel comfortable and happy in the community in which they live, and a cared-for, attractive vibe and ambiance gives potential tenants a positive first impression of the community.
It’s not easy to decide how to renovate a multifamily housing complex in order to bring in new clients and boost profits. Identifying the right upgrades, finding competent contractors, and obtaining financing for the renovations can be challenging; however, Joe Fairless explains to inventors that the end result is well worth the effort. At the same time, he cautions against rushing through the process. There are many factors to consider when deciding which renovations should be made, and careful research is a must to ensure the end product will appeal to the right people not only now but in the future as well.
