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Extreme Home Makeover: Budget Edition
by Jesse E. Fowler
The drop in rents that began in the last half of 2008 has stimulated both tenants and rental property buyers to hunt for better values. Now is a great time to consider upgrades to your apartment building or multiunit property. Contractors are hungry for work, and competitive bids are easily in reach (compared to past years). I am regularly asked: what improvements can I make on my building that will bring the highest return on my investment?
Most prospective renters are looking for clean, move-in-ready apartments that suit their needs. One key aspect of making improvements is the careful and smart choice of finishes for kitchen and bath remodels. Flooring replacements, plumbing fixtures, painted surfaces and even lighting need to be low maintenance, and easily cleaned and rejuvenated upon vacancy and delivery to the next occupant. And, of course, it is important to make the kind of improvements that will last for a long time rather than having to make replacements each time an occupant vacates.
In addition, if there’s a possibility that you may decide to sell some or all of your units as tenancy-in-common units in the future, you should take into account what potential TIC buyers want to see. In most cases, buyers have higher expectations than typical renters. In converting an apartment building to TICs, your goal is to exceed the value and appeal of comparable condominium units. The added expense will result in a higher return on your investment. However, if you are sure that you are in the rental market for the long haul, the finishes you choose will be different, and, of course, will cost you less up front.
Kitchens
Some of the highest returns on investment, according to Remodeling Magazine, are in the places you would least expect them. For instance, a minor kitchen remodel will recoup about 79.5% to 95.5% on your investment over the long haul, whereas a major kitchen remodel will only recoup a 76% to 87.3% return on investment. In cases where you intend to continue to rent the units out, and where you might have frequent tenant turnover, it is key to select finishes that will wear well and last for years to come.
If you are doing a major kitchen remodel, rather than selecting cabinets from your local Home Depot or Lowe’s, consider the large number of prefabricated cabinet manufacturers and distributors who are looking for your business. The current trends are for cherry or maple, Shaker-style or flat-panel cabinetry, which can be purchased for less than $1,500 for an average-sized kitchen. These cabinets can be installed quickly and easily by your local contractor and, in most cases, are of the same or higher quality as those offered at the big-box stores. Some even have a better look.
Most distributors sell these cabinets to you unassembled in a flat box (like the ones that you get at IKEA). Also, most of the distributors will be happy to assemble and deliver the cabinets to your job site for a reasonable fee (between $10 and $20 per cabinet).When selecting countertops and plumbing fixtures, consider the many granite fabricators looking for your business. Most stores that sell the cabinets you are looking for also have prefabricated slabs of granite.
For planned TIC units, you probably want to go with Zodiac, Cesar Stone or another honed surface. For rental units, the prefabricated unhoned surfaces tend to wear and clean up far better than the honed surfaces because they are less porous. An occupant’s negligence in the use of the kitchen surfaces can amount to a real disaster on honed counters. For kitchen fixtures, take into account that undermount sinks, undercabinet lighting, garbage disposals, quality cabinet hardware and decent stainless steel appliances make a world of difference.
For minor kitchen remodels, there are also lots of options to spice up an outdated kitchen. Prefabricated granite slabs can be found almost everywhere and are an easy upgrade to make. They can be used on existing cabinetry if the cabinets are in good shape; if not, perhaps the cabinetry can simply be resurfaced. In many cases, by repainting or otherwise resurfacing the kitchen cabinets, you can bring new life to them. By spending less than $8,000 per unit, you can remove outdated or chipped tile or Formica countertops and replace the sink, faucet and appliances, greatly increasing the rent you would expect from your unit.
Bathrooms
Bathrooms are very important to occupants. Residents want to feel as if they are walking into a bathroom that is new. Obviously, a bath cannot be remodeled every time you rerent a unit; however, by selecting the right finishes and fixtures when you do remodel, occupant after occupant can feel that the bath is clean and new upon move in. Bathroom remodels typically bring about a 75% return on investment, indicating that you should be slightly more conservative when remodeling a bath. Some of the best baths, those that last the longest and feel the most timeless, are the simplest ones. For floors, consider using 12” x 12” ceramic tile with a nonslippery surface. For a fancier look and in larger baths, considering laying the tile in a diamond pattern. Also, travertine bathrooms are cheap, and easy to put together. Consider purchasing 18” x 18” tiles and making an interesting pattern by cutting the tiles into a combination of 18” x 6”, 4” x 4”, and other tile sizes.
For walls, consider a 3” x 6” subway tile up to 48 inches on the wall. Great-looking subway tile at very good prices can be found at big-box hardware stores, with all of the matching edges, soap trays and necessary pieces. A word of caution: some white subway tile has an orange backing that can be seen through the grout lines and be an eye sore, so be careful when selecting.
Use a quality toilet. The last thing you or your property manager want is a call at night reporting that the newly installed toilet is clogged or the tank is leaking. Even though it may be tempting, the cheapest toilet is normally the worst, and even quality brands may have lower-quality models that can give you trouble.
If your apartment has two bathrooms, consider providing one bath with a tub and one with a walk-in shower. Make sure the bathtub overflow device is properly installed to avoid problems after the occupant moves in. In rentals, a prefabricated shower pan is fine; however, if you are remodeling with a TIC in mind, then only a tiled shower will do. In this case, consider using smaller tile. Not only is it easier for your contractor to install and slope for water drainage, it also adds variety and interest to the whole bath.
Other Considerations
Consider installing hardwood floors in place of carpets. Many renters (and definitely TIC buyers) are looking for hardwood floors. Hardwood floors can be installed in a typical unit at minimal cost, enhancing the appearance and value of the entire unit. According to City Hardwood Floors owner Paul Li, typical hardwood floors can be installed for about eight dollars per square foot. Removing bathroom space from the layout, a typical 650 sq. ft. one-bedroom can be completed at a cost of less than $4,500—money well spent considering the speed at which you will rent your unit and the fact that you won’t have to continue to clean or replace carpets as occupants change. Refinishing existing hardwood or softwood floors that are in poor condition is also a no-brainer and is much
less expensive.
As we all know, as far as colors go, neutral is best. If renting, use “landlord colors” such as Swiss coffee or antique white. If considering selling as TICs, use designer colors, and consider getting suggestions from a knowledgeable agent or a stager/color designer. The good news about TICs is that you only have to paint them once and you need not be as concerned about matching colors. With a rental unit that has to be repeatedly painted, it helps to have your color scheme down and a lot of paint on hand.
Be careful what you use for lighting fixtures, switches, dimmers, doorknobs and hinges. The trend is to shy away from shiny brass doorknobs and hinges, or ivory electrical receptacles and light switches. In historic buildings, use brushed or satin nickel, or another unobtrusive nonglossy style. For switches in a modern building, try using bright white Decora style receptacles and switches. Don’t try to get too fancy by selecting items that you would like for your own home. Aim to please the general audience; in most cases, it won’t be you living in the unit.
Make the exterior of your building stand out to prospective tenants. Consider repainting if the façade paint is faded, cracked or chipping. Street trees and landscaping in the front areas also help to spruce up what might now be empty patches of dirt. Properly stain, seal, protect and maintain all existing decking. Improve your common areas by replacing old carpeting; paint hallways and other common-use areas such as laundry rooms and garages.
New windows make a world of difference. Not only do they improve the look of your units, they can also provide energy savings. Natural light is always a plus. Consider adding skylights when replacing roofs. While you’re on the roof, think about solar panels. With today’s energy costs, solar hot water and photovoltaic systems make sense and appeal to savvy buyers and tenants.
Any of these measures can help your property show at its best. These simple and affordable upgrades will attract tenants and buyers who recognize quality and are willing to pay for it.
The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Jesse E. Fowler, a San Francisco native, specializes in marketing TIC developments, single-family homes and multiunit properties. He is with Brown and Co. Real Estate and can be reached at 415-648-5800. Copyright © 2009 by Black Point Press. All rights reserved.