In the world of multifamily real estate, value-add strategies are an effective way to increase the value of a property and generate higher returns for investors. One of the most crucial components of a successful value-add strategy is unit upgrades. In this blog post, we’ll discuss why unit upgrades are so important in a multifamily value-add strategy and how they can lead to significant returns.
Firstly, unit upgrades can greatly improve the livability of a property. Many older multifamily properties may have outdated appliances, finishes, and fixtures that can be unappealing to potential renters. Upgrading these features can make a unit feel more modern and comfortable and can help to attract higher quality tenants who are willing to pay higher rent prices. By providing tenants with updated features, you can create a more enjoyable living experience that can lead to longer tenancy and lower vacancy rates and turnover.
Secondly, unit upgrades can help drive the value of a property. Upgraded units can lead to higher rents, which can increase the net operating income (NOI) of the property. This results in an overall increase in the value of the property, leading to higher returns for investors.
Third, unit upgrades can provide a competitive advantage in a crowded multifamily market. As more and more investors look to enter the multifamily space, it’s becoming increasingly important to differentiate your property from the competition. By offering upgraded units, you can stand out from other properties in the area and attract quality tenants who are willing to pay a premium for a higher-quality living experience.
Finally, unit upgrades can help to future-proof a property. As technology and design trends continue to evolve, they can help property owners stay relevant and attract renters who are looking for modern and functional living spaces.
Unit Upgrades are a big part of our Value-add strategy at Catalyst. Just in the last 24 months, we have upgraded 400+ units across 4 of our properties helping us drive the NOI at our properties. Below is an example of a before and after look at one of the units we upgraded. A typical unit upgrade may include Vinyl Plank flooring, modern lighting and plumbing fixtures, new countertop, cabinet fronts, stainless appliances, kitchen backsplash, and USB outlets. It can also include smart tech automation for items such as door locks, thermostats, and lighting. This particular unit cost us about $12,000/unit and resulted in a $300 rent bump which equates to a 30% ROI and a valuation increase of $72,000 at a 5 cap. If we upgrade 100 units and achieve the same rent premiums on all upgraded units, the total increase in value would be $7.2M at a total cost of $1.2M.
Let us know what you think about this upgrade!