Enhancing the value of a real estate asset through renovations

There are many ways for a manager to optimize the revenue of a real estate asset, such as proper expense planning, increasing rents to full market potential and of course keeping tenants happy (who are the ultimate customers, never forget). Generally, work will be required to achieve these objectives. In this article, we will focus on the importance of renovations in the success of a real estate investment.

The importance of value-add potential when investing:

We analyze in detail everything that could be improved at a reasonable cost in order to optimize the profitability and resale value of an asset. An asset with a high value-add potential is generally not exploited to its full potential and requires work in order to attract better tenants who will be willing to pay higher rents and stay longer. Expenses may not be well managed and many maintenance or upkeep expenses may not have been incurred over the years.

Our job is to bring these assets back to their full potential as they offer excellent rental and resale value.

The principle of "forced" valuation on a multifamily building:

In the United States, the value of a residential building with more than five apartments is calculated as a multiple of its revenues, not by price/m2. Therefore, increasing the income (rent increase and/or decrease in expenses) of a building through better management and strategic work will ultimately increase its value, regardless of market conditions. This is what is known as "forced" valuation, which is not necessarily correlated to the market valuation, which comes from external factors (market evolution, macroeconomic context).

What is a "fair" renovation?

Another key concept in real estate value creation, the "right" renovation means the ideal, or optimal, renovation that will provide the best return on investment for the investor. It is also the renovation that will meet local housing demand and satisfy the needs of tenants who will end up staying much longer.

A "fair" renovation therefore optimizes rental income by carrying out effective, low-cost, but quality renovations, in order to boost the owner's profitability and stabilize the asset's performance. It also allows to rent at a "fair" rent, by allowing tenants to live in a quality home at a rent in accordance with their income.

Carefully select contractors and materials:

With a view to optimization and quality, we carefully choose materials adapted to the demand. Our goal is to deliver quality apartments, but not luxury ones. They must be adapted to the demands of the tenants in the area, who are generally looking for functional, clean and solid.

The choice of contractors is also important. We have established trusting relationships that we have maintained over the years, which allow us to obtain competitive rates and meet deadlines.

A precise specification:

For each of our renovations, we follow very strict specifications in order to optimize the return on investment and to limit future interventions as much as possible.

• Systematic visit by a certified inspector to check every detail of the house
• Upgrading of plumbing and electricity
• Neutral decoration to suit all tastes
• Solid materials, aesthetic, but not luxurious
• Sustainable floors
• A fully equipped kitchen
• Modern bathrooms
• Revision or replacement of the air conditioning system

Conclusion:

The renovation process is one of the pillars of real estate value creation. It will allow managers to restore a property to its full potential, to increase its income and value while reinforcing security for its investor(s). For example, a building that has been brought up to standard and stabilized with solid and long-lasting tenants will allow for a very strong reduction in real estate risks, such as deterioration, vacancy or even possible legal proceedings. It is therefore essential to entrust the management of the works to a trusted partner, who will be able to identify the needs of the tenants in order to optimize the expenses and the quality of the assets.