We recently looked at the large-scale investments that property owners might want to consider if looking to maximize rental values. As we noted before, choices about property improvements are a compound of art and science (a mixture that should ideally be grounded in sophisticated mathematical analyses!).

In Part II of this series, we look at some of the more affordable property enhancements that produce positive ROI. These improvements require a smaller up-front outlay of capital and maybe most appealing to cost-conscious real estate investors, IRO’s or the “weekend warrior” crowd.

Here are a few of the most cost-effective property improvements a multifamily owner can make:

Replace old carpeting.

Renters are notorious for causing wear and tear, and carpets usually bear the brunt of the damage. This is particularly true if residents have pets or small children. At a minimum, carpets should be professionally cleaned or (depending on their state) replaced when residents move out.

Investors may also want to reconsider replacing carpets entirely with high-quality tile, vinyl, or new hardwood floors. As a general rule of thumb, expect to spend the following:

· Ceramic floor tile: $14 to $22 / SF

· Vinyl tile flooring: $6.50 to $9.25 / SF

· Hardwood floors: $8.50 to $12 / SF

These costs do not include installation, which will tack on another $2 / SF (on average). Removal of the old floor, plus disposal, can tack on another $1 to $4 / SF. So, to replace the carpets in a 750 SF apartment, expect it to cost you anywhere between $5,500 and $8,000. One way to save on costs is to improve the flooring in the kitchen, bathroom, and living room while keeping the carpet in the bedrooms. 

According to a survey by Multifamily Executive magazine, flooring upgrades typically translate into a $150 per month rent increase, but of course, can fluctuate depending on the market. Adding hardwood floors will also reduce turn costs on future turnovers.

Install in-unit laundry.

On the surface, having a centralized coin-op laundry room seems like the most cost-effective laundry solution for multifamily investors. But residents are often willing to pay a premium (anywhere from $50 to $125 per month) for the ease of having in-unit laundry.

Keep in mind that new washers and dryers will carry a high up-front cost (particularly if you need to install new hook-ups), and could lead to higher water bills. A middle-ground is to offer in-unit laundry hookups and permit residents to obtain their own washers and dryers if they so choose, which will save owners on repair and maintenance requests. Installation of W&D connections can vary widely, so prudent investors are urged to understand the costs before moving in one direction or another.

Improve lighting.

Weigh out replacing outdated lighting fixtures. Fluorescent kitchen lightboxes or Hollywood-style strip lighting above the bathroom vanity, for instance, are easy enough to replace and will make a unit feel more contemporary.

While you’re at it, consider upgrading common area lights with new energy-efficient bulbs. Not only do CFL and LED bulbs last longer, but they use between 25% and 80% less energy than their traditional equivalents. At first glance, it might be tempting to replace in-unit bulbs while you’re at it, but most residents pay for their electricity, so doing so will not result in any ROI for the owner.

Regulate water usage.

Many cities have doubled, even tripled, water rates over the past twenty years to offset the costs of badly-needed water and sewer infrastructure upgrades. As a result, the water bill is often one of the owner's most substantial recurring expenses.

A few low-cost enhancements can make a big difference in terms of water usage. Install low-flow regulators on sinks and showerheads. If toilets haven’t been replaced since the early 1990s, consider replacing with new energy-efficient models which can save up to 5 to 10 gallons of water per day, per toilet. If a new toilet isn’t in the budget, you can put an object (like a plastic water bottle filled with pebbles) in the toilet tank to decrease the amount of water that flushes out. There are several low cost “tank bags” in the marketplace that serve the same purpose.

Potty talk aside, investors should always be vigilant about leaks. Remind residents to call you if they suspect there’s a problem. And finally, consider re-landscaping with drought-tolerant plants if existing plants require frequent watering.

Case studies indicate that these simple modifications can reduce water usage by upwards of 40%, generating as much as $858 in savings per unit per year, and depending on the situation, water reduction savings could be a high as 66%. At that rate, investments made to reduce water usage will result in a positive ROI in less than a year.

Add fiberglass insulation.

A recent analysis finds that fiberglass attic insulation has the single highest ROI in many apartment markets. Adding fiberglass insulation costs just $1,438 on average while returning an estimated $3,911 in property value (272% ROI). Not only does this grow property values, but it also translates into energy savings—which is especially crucial for owners that include utilities as part of the monthly rent (the ROI will be lower if residents pay for their service directly thru a municipal organization that's supplying the community with electricity, gas, water, or sewage).

Fiberglass insulation is also much more cost-effective than replacing windows. The analysis shows that replacement windows save about as much energy as adding insulation, but costs ten times as much. “In most cases, you can get the same energy savings by investing $1,000 or so in insulation, sealing air leaks and repairing your windows instead of replacing, explains HouseLogic analyst Karin Beuerlein.

Consider ancillary income opportunities.

Property owners and managers often overlook ancillary income opportunities, such as bulk cable, renters’ insurance, valet trash, etcetera. These moves are all about retention. There are now companies that package amenities for property owners and managers using tech platforms. One example is a company called Amenify.

Amenify understands that not every community will be able to accommodate a dog washing station or state-of-the-art fitness center. Instead, Amenify connects your residents to those services elsewhere through its tech platform. Residents enjoy convenient bookings and exclusive access to trusted local providers, from apartment cleaning to dog walking, from massages to personal training. Each provider supplies its retail price and then provides a discount for Amenify residents. Deeper discounts can be had on certain days or during specific service windows.   

“It’s about convenience,” says Everett Lynn, Founder, and CEO of Amenify. “You do not really know what is important [to residents] until you offer a suite of options.” Amenify curates the services for residents and then manages its marketplace. The ROI is generated through ancillary income and/or profit-sharing with vendors.

The Bottom Line

Given that ROI can vary considerably depending on the specific property or market, it can be tough for an owner to evaluate which investments to make. A company called Enodo wants to make those decisions easier.

Enodo’s predictive-analytics platform uses regression analyses to track the relationship between rent and specific apartment features – such as fitness centers, bathtubs, and walk-in closets.

“There’s no quantification of adding or removing amenities or locating a development in a specific neighborhood,” explains Enodo co-founder Mark Rutzen. “This [product] conducts a full market analysis on a granular level,” including the incremental rent increases a property manager could expect from various property upgrades. The goal is to help real estate investors make more accurate determinations about whether the extra expenses united with specific updates are worth the implied return.

Of course, even the most sophisticated technology cannot replace on-the-ground knowledge. As you know, real estate, in general, and particularly multifamily, is all about relationships. Contact local property managers, brokers, and also other investors to learn from their expertise as to what multifamily improvements will advance the highest ROI in your market.