Navigating Multifamily Renovations: Balancing Revenue, Tenant Quality, and Property Value Growth

When renovating a multifamily building, what strategy do you use?

Do you renovate one unit at a time? All at once? Something else?

The strategy you use will depend on the condition of the building and the tenant quality.

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Ideally, it’s great to have revenue while doing renovations.

If you can renovate units during turnarounds, that will keep your revenue high and minimize disruptions.

However, that can be a slow process. if you need to renovate lots of units to meet your refinance goals, what approach do you use?

We don’t like displacing tenants. If we have a good tenant, we will work to move them into a renovated unit, then renovate their prior unit.

You need to discuss the process in advance and let the tenant know that their rent will have to increase in exchange for the newly renovated unit. However, for a good tenant, you can keep their rent a bit below market. It’s way better than having to find a new tenant.

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What if you have lots of dilapidated units and bad tenants?

If you believe that the bad tenants will drive away good tenants, you may need to evict the existing bad tenants, or all of them, first.

If you have a garden-style apartment complex, you may be able to do this on a mini scale, emptying one building at a time.

The downside is that you don’t have revenue. You will need to plan renovations well and make sure you have included the downtime in your financial calculations.

Renovating an entire building or complex with no income is not for the timid.

If the building has had a bad reputation because of bad tenants, don’t forget to re-market it. Change the signs and complex name. Mentioning new management, while renovating and stabilizing the complex is also a great.

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Something to keep in mind is that people often live up to expectations. If it looks like the owners don’t care about the condition of the building, tenants often won’t care either.

Once you start renovating and improving the quality, you will likely see many tenants change their behavior and display more pride in their housing.

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There is not a single approach to renovating a multifamily building or complex. You will need to balance revenue with the existing condition of the building and the quality of the tenant.

With proper planning you can not only improve the living conditions of the tenants but also increase the value of your property and your income.

Happy Investing!