Tenant Improvements: Cash-Out Refi Loans to Improve Your Property and Raise Rent

There’s a long-standing argument in real estate about whether it is better to have furniture in a place that potential renters are looking at or to leave it empty. Having furniture lets them see the place as a home, and not an empty and drafty series of rooms. It allows them to get a sense of scale and to judge it better, and also allows them to mentally see themselves relaxing on the couch. On the other hand, an empty space lets people decorate it however they like (even unrealistically) – which can help with the sale. One thing that imagination or furniture can’t cover, though, is a dingy place in need of upgrades. For landlords and owners looking to attract tenants that’ll pay more rent, making sure you make the right upgrades with your cash-out re-fi loan is the best investment you can make.

What do we mean by the “right upgrades”? Well, getting a re-fi loan from a leading California lender, allows you to make improvements on your rental property. This is important because the California rental market is booming, with low vacancy rates allowing for higher rents. Additionally, you have the Bay Area tech industry moving south, in LA and its surroundings, which will create a demand for more luxurious rental properties for the “tech middle class”.

You want upgrades that will maximize your return on investment. This means spending as little as possible while making the improvements that can allow you to attract the right kind of tenant and charge the right kind of rent. These may not be as cheap as a coat of paint, but don’t have to break the bank either. Here are some of the best ROI tenant improvements:

Improving Initial Impressions

We’ll start with the least expensive. Every building has a door, and when prospective tenants first see your property that’s the first impression they get. An amazing property can overcome a junky door, but unless you can blow viewers away, a bad door can temper the rest of the experience. A solid door will cost you a few hundred dollars, although interior hollow-core doors should only set you back around $50.

Another important area to consider is the common entry areas which people first walk in to. These are crucial when it comes to managing expectations. If people walk into a marbled foyer, they’ll often expect to pay more for an apartment. It might seem odd to spend money on the place where the least amount of time will be spent, but it can do wonders for the reputation of your building.  The same goes for the landscape.

Inside the Apartment: New Floors, New Appliances, New Countertops

Now we start spending more money. Inside the apartment, there are a lot of things you can do to improve tenant experience. The first is to look at the floor. Some people still like carpet, but for most, it is hardwood or nothing. Depending on what kind of floor you have, you may be able just to tear up the carpet. Of course, you’ll have to buff and sand the wood underneath. If you have to do a full replacement, expect to spend $9-$12 per square foot.

Next, move on to the appliances. A washer/dryer combo can cost a few hundred dollars, but you can easily earn that back in a matter of years . People value convenience, and not having to go downstairs to the laundry room is huge. Forcing people to go to a laundromat can make it very hard to get the kind of tenants you desire. Lack of a dishwasher may not force people out of the apartment, but it also can make them do work they don’t want to do and is another attractive amenity.

Finally, look at countertops. Marble or stainless steel are both pretty timeless. Granite can begin to get very expensive, but if you are trying to attract the cream of the crop, especially new tech money, it is an investment that can quickly be gotten back.

Amenities

Finally, you have to decide what kind of apartment you want to be. It may be acceptable just to have a bunch of nice apartments, but many people decide based on the other things. For instance, a gym, or at least a workout room. Excellent wi-fi. Common areas for people to congregate. Specialized bike rooms. Common land in the yard where people can plant, like a community garden. Anything to separate you from other places where people can live. Anything, in short, that makes a rental unit a home.

Crunching the Numbers

So, you’re spending, but what are you getting back. Estimates can vary depending on the region and other market conditions. One estimate is that spending $6500 per room allows for an increase in rent of $150 per month. A quick back-of-the-envelope calculation estimates that this investment pays for itself in five years (not counting normal yearly inflation). Another estimate is an $80 increase resulting from $4000 worth of repairs, which amortizes in four years. So we can conclude that reasonable upgrades pay for themselves in 3-5 years, depending on variables.

The alternative may be just sitting on your hands and letting the competitive rental market do its work. It’s true that you can succeed right now even without much effort, but these conditions don’t last forever. Getting the right tenants in now helps ensure they’ll stay in the future. That takes work, and can take a cash-out refi loan from a top California lender. It might take imagination to make a unit look great, but it only takes intelligence to know that the time to act is now.

Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.

 

Leave a Reply