A Primer on Renovations Math for Property Owners

By Adam Frisch, Managing Principal, Mantus Real Estate

As a leasing agent and advisor to multifamily property owners, my goal is to help them figure out which cosmetic renovations will most effectively increase the rents they’re able to charge. First, one must understand the difference between essential repairs, such as fixing crumbling walls, and cosmetic improvements, such as installing stainless steel appliances in a kitchen. Essential repairs have to be carried out simply to rent the apartment while cosmetic improvements are nice “extras” that can help increase rents. 

When calculating the payback time for charging additional rent, owners can only count the cost of cosmetic renovations. For example, if $30,000 of a total $60,000 renovation budget is spent on cosmetic renovations, then the payback time in increased rent is calculated based on $30,000. The other $30,000 is factored into the building budget, seeing as those repairs had to take place.

Installing new closets, moldings or radiator covers are considered to be cosmetic renovations. In New York City, solid returns on cosmetic apartment investments are those that pay for themselves within three to six years. The return is calculated based on how much of the cosmetic investment is returned to the owner in additional rent each month. 

I often advise owners to upgrade kitchens and bathrooms in order to get the maximum bang for their buck. Granite countertops, stainless steel appliances and dishwashers in kitchens go a long way when increasing rents. In regards to bathrooms, replacing floor tiles, glazing over older floor tiles, or putting in marble flooring all work in favor of owners.

As long as owners understand the difference between essential and cosmetic renovations as well as the rent increases which they can reasonably charge for cosmetic improvements, they should be able to cultivate a high-quality portfolio of renovated apartments with timely paybacks.

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