5 Renovations to Maximize NOI at Your Rental Property
The housing market is more competitive than at any time since the end of the Great Recession. As a result, rental property owners are searching for ways to maximize their return on investment (ROI).
While there are several ways to increase rent, there isn’t always a one-to-one return for renovations. However, rent isn’t the only factor that helps owners maximize net operating income (NOI). Boosting the return on an investment means limiting vacancy and maintenance costs, while achieving the highest rents possible. By utilizing all angles, an investor can maximize NOI at their property.
This article highlights five easy upgrades you can make right now to maximize NOI by limiting vacancy and reducing maintenance costs at your rental. They are:
1) Add fresh paint after every turnover.
2) Install the proper flooring for your unit type.
3) Maintain professional landscaping.
4) Install a good security system.
5) Upgrade to modern amenities.
Limit Vacancy and Trim Maintenance Costs
Vacancy can be a significant cost to investors, particularly leveraged owners that continue to make loan payments without bringing income from the property. Beyond having a qualified property management company, there are some capital expenditures that reduce the time it takes to rent a vacant property, including some relatively inexpensive updates between renters.
Maintaining a rental property can consume up to 50% of collected rent if the property is of an older vintage. It can also require significant upgrades. In submarkets with limited turnover, durable materials can prolong the time between replacement. Additionally, quality construction can improve the living experience for your tenants. Hiring a property manager dedicated to maximizing NOI through efficient, high-quality repairs is another key to maximizing NOI. MYND, for example, saves property owners 20% on repairs and maintenance on average per unit.
Renters that spend time without a hot-water heater or refrigerator may reconsider their living situation at the end of a lease, whereas renters that have few inconveniences are more likely to extend their stay. Reducing turnover is one of the most effective ways to improve income. A professional property management company can leverage technology by empowering their residents with apps and other online tools. They can utilize these apps to report problems when they arise. For owners, this technology reduces the hassles associated with maintenance.
Maximizing NOI during occupied months is the most obvious way to improve rental returns. First and foremost, property owners need to understand what the market rents are when the unit is available. To do this, management companies typically use software that analyzes the market and compares rental comps from nearby available properties. Amenities can also ensure property owners are competing for the best tenants and achieving the highest rents.
How to Implement 5 Simple Renovations to Maximize NOI
These five upgrades are critical to maximize NOI at your rental property, and realize its investment potential. The include the following:
1) Add a fresh coat of paint. A new coat of paint should be applied after nearly every tenant turnover. This is one of the least-expensive ways for property owners to show their units in the best light. A light, neutral color gives the impression of a larger space, particularly when combined with bright light bulbs. Additionally, a fresh coat of paint provides the same mental reaction among tenants as a “new-car smell.”
2) Install the proper flooring. Depending on the property, flooring can go one of two ways. In large apartment complexes where economies of scale come into play, less-expensive carpet that is easily replaceable can provide the best ROI. Single-family homes, meanwhile, may do better with higher-quality carpeting or durable manufactured flooring. Tenants in single-family homes are more likely to live in properties longer. Therefore, changing the floor during the duration of a tenant’s stay is cost prohibitive.
3) Maintain professional landscaping. Curb appeal is the first impression a potential renter will have when considering a property. Regardless of the internal aesthetics of a unit, the renter might already be looking for a reason to move onto the next available property before walking in the front door. Saving money by letting tenants manage landscaping should never be a consideration. Most renters prefer a hassle-free living experience, and are not equipped or trained to properly maintain landscaping.
4) Install a good security system. Oftentimes, rental properties are in densely populated areas with a lot of people around. Renters want to feel safe when they enter their property or unit. Having an available security system may provide an additional edge over the competition. This need is exacerbated as more renters today are living alone. In single-family rentals, property owners should also consider security doors to increase the attractiveness of their assets.
5) Upgrade to modern amenities. Apartment developers have been active over the past several years, and nearly all of the new stock coming online in major metro areas are Class A units. Property owners that compete for renters with newer properties should consider installing modern appliances and smart home features. Kitchens are the most noticeable areas when it comes to modern amenities, and should be considered the highest priority when renovating. Dishwashers, stoves, refrigerators, garbage disposals and other appliances – particularly smart appliances that are digital – appeal to residents. Smart home devices such as smart locks, Nest thermostats and automated lighting dimmers also appeal to renters.
To learn more about how you can maximize NOI at your property, contact MYND.