By: Joe Golike of Lovely
Should I upgrade my unit? It’s a question we get frequently from owners of rental properties. The short answer is yes. Improving an apartment will increase its value to renters and will enable you to charge more per month in rent from your tenants. But there are a number of factors to take into account, and it’s important to be smart about which upgrades you choose.
How much is my unit worth?
When considering the potential value of an upgrade, what we are really asking is, “How far up the value spectrum can we push this unit?” To understand what we mean by this, imagine all of the rental properties in a neighborhood lined up and sorted from least to most expensive. Here, for example, is the current price range of two-bedroom rentals in The Richmond:
Price Range of Two Bedrooms in The Richmond
We’ve broken it up into five levels—one star for the least expensive units, all the way up to five stars for the most expensive. Three star priced units are right around the median for the area, about $3,600 for The Richmond.
There are some things that are generally true about units as you move up the value spectrum: properties tend to get larger, have more attractive features, and higher quality finishes. There isn’t a one-to-one relationship between any one thing and price; it’s the combination of size, features, and finishes that determine the price. This is an important principle that we’ll return to later.
What upgrades should I make?
If you’re looking to increase your unit’s star rating, and in turn, the value, here are some of the upgrades you should most seriously consider:
Washer / Dryer: + 1/3
Everyone has clothes that need to be washed, and when given the choice between competing with the other tenants in the building for a shared laundry room versus doing your own without leaving home, it’s easy to see why an in-unit washer/dryer is one of the most broadly desirable features to renters. Generally, we’ve found that a washer/dryer adds a third of a star to the overall rating.
Hardwood flooring: + 1/2
Flooring is something that gets the most wear and tear in a rental. Some owners opt for cheaper carpet for this reason, hoping to minimize the ongoing expense of cleaning and replacing it once it wears out. But flooring is also something that contributes a lot to overall feeling in a renter’s mind of how nice a place is. Good quality hardwood flooring can last a lot longer and require much less maintenance year after year than carpet. New hardwood flooring typically adds a half a star to the overall rating.
Remodeled Kitchen: + 2/3
Bay Area renters place a high value on a quality kitchen. Granite countertops, efficiently used space, and new appliances can make an apartment feel like it’s on another level than the standard run-of-the-mill place. It can be a fairly sizeable investment to remodel a kitchen, but opting for good quality materials and appliances will make this investment last for a long time. Upgraded kitchens often add as much as two thirds of a star to the overall rating.
But how much is it worth?
You’ll note that we haven’t yet discussed dollar amounts. The location contributes heavily to the potential value of upgrades. Let’s look at the price range of two-bedroom units in The Richmond again, and compare it to two bedrooms in a pricier neighborhood, The Marina.
Price Range of Two Bedrooms in The Richmond
Potential rental value of upgrades
|The Richmond||The Marina|
|New hardwood flooring||$164–180||$286–408|
You’ll notice that upgrading a unit in The Marina is going to net more in monthly rent than a similar unit in The Richmond. That comes down to one key factor: location.
Additionally, as you move up the value spectrum, the price-jumps get larger from one star to another. For example, moving a two-bedroom apartment in The Richmond from a 2-star to a 3-star is an increase of $320, but moving a 3-star to a 4-star will gain $352.
How do I get the most out of upgrades?
It’s important to keep in mind that upgrading piecemeal will get you less of an overall bump than combining upgrades. Mismatched materials or quality of features may seem odd or confusing to potential renters, so you should strive to make an overall improvement to the quality of the apartment. Ultimately, you’ll get the most bang for your buck by upgrading your rental unit to be more attractive (and thus more valuable) to renters.
About the author: Joe Golike is the rental market specialist for Lovely. When he’s not pouring over data at Lovely HQ, he can be found mixing fancy cocktails for coworkers. firstname.lastname@example.org.
About Lovely: At Lovely, we offer a service called Lovely Direct, an end-to-end leasing service that prices your rental, markets, shows, screens, and delivers a signed lease all for $100. Never write a listing, complete painstaking background checks, or waste half a Saturday at an open house again. To start getting the most from your rental property, contact us at email@example.com or (415) 670–9061.