How to Capitalize on Capital Improvements at Multifamily Properties

Maximizing property value and increasing revenue are two of every property manager’s key objectives. And while it might sound expensive to launch a capital improvement project, or several capital improvement projects at your property, with careful planning and oversight the results could be worth it.

Overall, consumers pay more for upgraded properties because they offer enhanced quality, modern amenities, improved aesthetics, energy efficiency, better functionality, and in some cases, a sense of prestige. These factors contribute to a higher perceived value and desirability of the property, justifying a higher price in the market.

Sherry Yarborough, director of multifamily management with Drucker + Falk, AMO, says “Investing in improvements at an older property allows for the opportunity to provide an upgraded unit at a more reasonable price point than newer developments that have been added to the market over the past few years. We’re focusing primarily on upgrading unit interior finishes because that’s where we see the biggest return on investment.”

Yarborough’s team spends roughly $16,000–$20,000 per unit on new countertops, stainless steel appliances, vinyl plank flooring, hardware, lighting, and cabinets. Returns on their investments have been between 12% and 20% due to the increased rental rates they’re achieving, as renters are willing to pay a premium to live in an upgraded unit.

Where to start?

There are countless ways for property managers to make capital improvements to their properties—improvements that increase value and attractiveness to residents. Some of the most common improvements to build NOI include:

Enhancing interiors. Investing in interior upgrades like new flooring, countertops, appliances, lighting fixtures, and hardware can significantly improve the appeal of the property to tenants. Cosmetic changes to modern and desirable finishes can command higher rental rates, and attract tenants who are willing to pay a premium for upgraded units.

Improving energy efficiency. Employing sustainability measures is front and center for property managers around the world. Implementing energy-efficient efforts not only reduces operating costs, but also appeals to tenants who are increasingly conscious of environmental sustainability. The 2022 AMLI Sustainable Living Index reported that 88% of residents surveyed are concerned about climate change, and 43% said green features factored into their decision to live in specific apartment communities.

Property owners can invest in energy-efficient appliances, LED lighting, smart thermostats, low-flow plumbing fixtures, and other green technologies to enhance the property’s energy efficiency and reduce utility expenses.

If residents pay for their own electricity, solar power can reduce costs. These savings can be reflected in higher monthly rent. And, if electricity is included in your residents’ rent, installing solar can reduce your monthly operating costs. Solar panels produce electricity for more than 25 years, so installing them can help maximize NOI for your property. Even if you choose a solar lease, you can see savings.

Upgrading common areas and amenities. Creating attractive and functional common areas and amenities can significantly improve the overall value and attractiveness of a property. This can include upgrading lobbies and fitness centers, building green spaces, allowing more natural light to enter common areas, and creating shared workspaces. Providing amenities that promote health and wellness, such as air purification systems, outdoor exercise areas, or bike storage facilities can also be appealing to tenants.

More recently, renters started seeking flexible floor plans, such as turning a home office into a gym or a bedroom. Kitchen pantries are also becoming more popular to save time and reduce shopping trips. In addition, buildings that use natural ventilation and air purification systems are trending since the pandemic.

Increasing safety and security. These days no one can be too careful. Increased gun violence, mental illness and social unrest make us all targets, at home and everywhere else. Capital improvements that enhance safety and security are highly valued by tenants. Property managers can invest in installing security cameras, access control systems, adequate lighting in parking areas, and secure entryways to support a safe living or working environment.

Applying technology. Incorporating technology into a property enhances the tenant experience and attracts tech-savvy tenants. In fact, many consumers expect these amenities at every property. Property managers can invest in high-speed internet connectivity, smart home features, and mobile apps for communication, maintenance requests, and even local restaurant recommendations. With the surge in electric vehicles, consumers also expect buildings to be equipped with charging stations that charge their vehicles quickly.

Property managers should consider capital improvements now because investing in the enhancement and modernization of properties not only increases their value and attractiveness to tenants, but also positions them for long-term success in a competitive market. In a rapidly evolving industry, staying proactive and forward-thinking through capital improvements is the key to staying ahead and unlocking the full potential of a property.

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