The desires, tastes, and must-haves of renters transforms from year to year. Priorities come and go, yet staying up with what modern renters want can be a critical element to achieving or exceeding your multi-family investment’s business plan objectives. Yet what do you do when you are starting with apartments built in a different era, when current priorities were not even a “thing”, known, or a competitive advantage at the time?
To answer this, let’s look at the reported priorities of modern renters from a new massive study by the National Multifamily Housing Council (NMHC) and Kingsley Associates. The results are interesting by themselves, and get even more interesting when we divide out low hanging fruit opportunities for older value-add properties from what may be more difficult or expensive to do in those properties. As a property owner, you do not necessarily need to check the box on everything that every renter wants. Instead, start with what many renters want and then hone those options down to which items are most feasible with highest ROI.
Note that “keeping up with the Joneses” for the latest amenities is not actually needed for all types of properties. Some locations, property types, and demographics do not need many of the upgrades discussed below, or these amenities are low enough priority for those renters that they are not willing to pay extra for these upgrades. In those cases, you must be in touch with what your renter base desires. It may come down to less is more, meaning that fewer bells and whistles for lower rent may be their primary driver, and they are not interested in Class B+ amenities. That is completely fine. In those cases, focus on providing quality homes, great condition and maintenance, responsive management, and perhaps a sense of community. For properties where you want to up-level its positioning in the market, attract more or different tenants, or have a competitive advantage over other nearby properties, read on.
First, I’ll start with the hard stuff. These tend to be expensive, impractical, or low ROI. Nonetheless, be aware that newer properties may have these amenities. They can charge higher rents accordingly, though your cost of acquisition should be lower so that your Class B or C property can still provide better cash on cash returns even with them having lower rents. The first two topics below (layout and windows) were not highlighted as much in the report, so I will add them here for completeness.
- Layout: Chopped up rooms do not appeal as well as modern, more open concept space and flow. Completely reconfiguring internal walls, electrical, lighting, plumbing, etc. can be very cost prohibitive and will likely not provide a good return on your investment. Instead, work with what you have, price accordingly, and add less expensive modernization touches such as updated paint schemes, flooring, appliances, exterior curb appeal, and community amenities.
- Windows: Replacing old aluminum windows with modern vinyl or fiberglass windows will be noticed by some renters and not even register for others. This again depends upon the class of building and type of tenant your property is pursuing. Offering a bit lower rent may be a better ROI than spending a lot on new windows. Basic infrastructure tends to be considered a given by renters and does not usually command a direct relationship to higher rents. A renter does not pay more rent just because you installed an expensive new roof, for instance.
- Central air conditioning: This was a big request for renters in hot climates. However, it is expensive to retrofit. Less desirable in-window or in-wall units are more likely a better ROI unless you are already performing a major interior rehab.
- Coworking space: 42% said they telecommute for work, yet only 15% were interested in a co-working space. Working in their own private apartment seemed to be the preference. So, retrofitting or adding new coworking office space may have low percentage appeal. There is more interest in a business center that has some business oriented services such as a copy machine, fax, package delivery, and perhaps business concierge.
- Coliving: This is a new trend of sorts, allowing for smaller square footage units since some amenities and spaces are shared with other tenants. However, 69% said they were definitely not interested in this type of apartment living, and only 4% were actually interested. For dense urban areas with high per-square-foot construction costs, this design may make sense. For most other areas, it is not worth converting toward. One exception: Some old “boarding homes” can be purchased relatively inexpensively because of their funky layout and nature. However, they are sometimes essentially older versions of coliving buildings, and can be re-purposed and re-branded to ride the coattails of this new trend.
- Mobile phone reception: This is critical to 91% of renters and 44% will not even rent without it. So, it is extremely important to have. However, it is not directly under your control on your property. If your property lacks good mobile phone reception, then it may be worth collaborating with cell phone providers if you are willing to take on that task. However, when you get good mobile phone reception, remember that this is another example of “expected infrastructure”: renters will not pay more than general market rent for having it since it is just expected to be there, but they will avoid your property, pay less, or leave earlier if you cannot address this issue for them.
- Quiet: Quiet living arrangements are extremely important to renters. Soundproof walls are important to 94% of renters and noise-reducing windows are important to 85%. However, these design aspects tend to be best implemented at time of initial construction and can be expensive to implement as part of an extensive remodel. There is a partial solution noted further below. Also, sometimes onsite management of loud behavior and perimeter sound walls can help.
- Green space: If your property does not already have green space, then it’s likely too expensive to purchase additional immediately adjacent land for this purpose.
- Pool: 84% of renters nationwide want a pool, especially for parts of the country where that is the norm. However, installing a new one can be very expensive plus it incurs ongoing maintenance and liability issues.
- Visitor parking: If you do not already have visitor parking and your property is already somewhat max’d out on buildable area and design, then this may be logistically problematic as well as very expensive to implement for new additional parking spaces. If there are good options for this at your property, then keep in mind that it is considered an important community amenity.
Now, let’s get to the good easy stuff. These kinds of modern amenities are absolutely doable in many older apartment complexes, and they are not necessarily very expensive to implement. ROI can be quite good if they can command additional rent and/or reduce vacancy time by comparing well with the competition. Steadily implementing these ideas can increase both your NOI (Net Operating Income) as well as the market value of the property (which increases your net worth).
- Home automation technology: This is a big and increasing amenity. If you can provide some basic wiring and Internet connectivity, you can have examples of home automation technology installed for just a few hundred dollars per amenity. Yet renters are willing to pay about $30 extra per month per amenity in many markets. So, you can recoup all your costs within a year and then ride the profit after that. The most popular renter requests include smart thermostats, smart lighting, smart locks, interactive video doorbells, and virtual assistants such as Amazon Alexa or Google Home. Other more complicated and expensive requests such as smart glass are much less likely to achieve the same ROI, so stick to those first hardware level upgrades first.
- High speed Internet: If your property is not already connected to cable, fiber optic, or other strong broadband sources, yet it is available, then definitely get that corrected so it is easy for tenants to connect to high speed Internet from their homes. The local Internet company will likely be happy to help, since it opens up more customer opportunities for them. This is a critical go/no go criteria for 92% of renters! Only 2% of renters have no Internet-connected device nowadays.
- Wi-Fi: 75% want pre-installed Wi-Fi and would like community Wi-Fi. If you can get high speed Internet, then this is your next upgrade. Wi-Fi also enables most of the home automation technologies to effectively work in conjunction with their main services and the tenants’ phones & computers.
- Noise-reducing window shades: If external noise from traffic or other activity is an issue at your property, then implement and advertise noise-reducing shades. These do not help with noise issues between units, though they can help with general ambient noise reduction.
- Garbage disposal: These are widely requested and generally easy to install. They are best for plumbing that can support them and public sewer (not septic) systems.
- Modular closet systems: These popular systems can help modernize an older unit plus better optimize small closet space. They are adaptable to many different closet sizes and configurations, so there is a lot of flexibility to add them in older value-add properties.
- Short term rentals: 60% of renters said that having short term rentals in the community would either be a plus or no effect on their perception of the community. However, 16% said they would not even rent at such a place. So, the lesson here is that this is an option if it is an important part of your business model. However, it is much more management intensive and has more potential downsides. Nonetheless, you can furnish existing units and get much higher nightly rates, if desired and appropriate for your property and location.
- Recycling: Recycling was important to 79% of renters. If your local municipality or waste management service offers it, try it out at your property and advertise the green factor.
- On-site renewable energy: 63% of renters want this. However, it may or may not directly benefit their monthly bills, though it sets a tone for the community. The easiest implementation would be to purchase photovoltaic solar panel arrays and have them connected to the common area electrical requirements that are paid by you, the landlord. This could cover lighting, laundry, community Wi-Fi, and common areas such as fitness or business centers. Solar energy has become extremely cost effective and will frequently provide a solid ROI in many parts of the country.
- Fitness center: Do you have a common area that is under-utilized and could be re-purposed? 84% of renters want an onsite fitness center, especially with exercise machines and free weights. This can quickly help put an older community more on par with newer offerings with these types of modern amenities.
- Non-smoking buildings: This popular tenant request can be easily implemented at an inexpensive policy level, though it may require occasional property management intervention for offenders.
- Pet amenities: About 34% of renters have pets, primarily dogs. If your property has some extra lawn space, fencing it off to create a dog run can be a big benefit. Renters are willing to pay about $30 extra per month for it, and will pay even more if there is also a dog washing station and pet sitting services. The latter can also be further monetized or implemented in conjunction with another local business specializing in those services.
There are clearly a wide range of retrofit options available to owners of older B and C properties. Determine what is most in demand for your local demographic, which will provide the highest ROI, and then you can progressively implement improvements over time.