Older apartment buildings are less expensive than newly built properties, which allows investors to enter the market with less capital. However, compared with newly built properties, older apartments tend to attract less demand and are more likely to experience vacancies, which can make income less stable. Renovation is one way to improve profitability, but because it requires a significant investment, it is important to understand the key points carefully. In this article, we explain the key points and cautions for renovating older apartments.
What kind of property is an older apartment building?
An older property generally refers to one that is around its statutory useful life. In the real estate industry, properties that are typically 20 to 30 years old are often treated as older properties.
General guide to statutory useful life:
- Wood-frame: 22 years
- Steel-frame: 19, 27, or 34 years (depending on the thickness of the structural steel)
- Reinforced concrete: 47 years
Advantages of investing in older apartments
- Relatively affordable purchase price: They can often be purchased at prices that have fallen significantly compared with newly built properties
- Potential for high yields: Some properties that are more than 30 years old may offer yields of 10% or more
- Tax savings through depreciation: Because they can be depreciated over a shorter period, the annual depreciation amount can be larger
Disadvantages of investing in older apartments
- Repairs and renovations are often necessary: Repair costs are more likely to be higher than for newly built or relatively new properties
- Mortgage financing may not be available: If a property has exceeded its statutory useful life, some financial institutions may be reluctant to offer long-term financing
What are the key points when renovating the exterior and common areas of an older apartment building?
The exterior and common areas are important because they strongly influence first impressions among prospective tenants.
Stairs and corridors
Rust on metal surfaces, peeling paint, damage, and dirt can create a poor impression. Keep these areas in good condition through repainting, repairs, and high-pressure cleaning.
Garbage collection area
Ease of use and cleanliness are essential. Consider installing panels or a garbage storage unit that keeps trash out of sight, as well as separate containers for sorting waste.
Bicycle parking area
Install a roof or enclosure and create an orderly bicycle parking environment with cycle racks. Wheel stop bars can also contribute to security.
Mailbox area
Renovate to a size that can accommodate larger mail items, and improve security with dial locks or smart locks. Installing parcel lockers can also be highly effective in improving convenience.
Exterior wall painting
Exterior wall painting has a major impact on the building’s visual impression. Choose a color scheme that matches the overall design of the building and blends naturally with the surrounding environment. Higher-grade paint has a higher initial cost, but because it lasts longer, it can be more economical from a running-cost perspective.
Entrance doors
If there is peeling paint or rust, consider replacement or repair. It is also worth considering switching to smart locks or installing a video intercom.
What should be prioritized in interior renovations for older apartments?
The key is to start by updating features that now feel outdated for modern living.
Converting Japanese-style rooms into Western-style rooms
There is a tendency, especially among younger generations, to prefer Western-style rooms. If there is little demand for Japanese-style rooms, converting them can also help reduce running costs.
Replacing wallpaper
If there is fading, discoloration, or peeling, it should be replaced. If you are unsure, white tones are a dependable choice. Accent wallpaper can also create a stylish look.
Replacing flooring
If scratches or dirt are severe, consider replacing the flooring. The atmosphere of the room can also be changed through installation patterns such as random plank or herringbone.
Enhancing storage space
If storage is already well provided, it reduces the burden on tenants to purchase additional furniture, which is a major advantage. Converting closets from traditional storage spaces or adding a loft can also be effective.
Adding more electrical outlets
Demand for electrical outlets has increased with the rise of remote work. Adding more outlets helps prevent overloaded extension wiring and can also contribute to fire prevention.
What points should be emphasized in water-related renovations?
The usability of kitchens, bathrooms, and other water-related facilities is directly tied to comfort, so it has a significant impact on tenant satisfaction.
- Kitchen: Choose according to the target tenant segment. A system kitchen is suitable for families, while a compact kitchen may be sufficient for single occupants
- Built-in stove: If dirt or age-related deterioration is visible, replace it for safety
- Unit bath: Because many people look for properties with separate bath and toilet areas, consider separating an integrated unit
- Toilet: Washlet-equipped toilets are becoming standard, and replacement alone can improve the overall impression
- Washbasin: Replace it with one that offers ample storage and pay close attention to functionality as well
What points should be kept in mind during renovation?
Success depends on keeping cost-effectiveness in mind and carrying out renovations that match the needs of the target tenant segment.
- Research demand within the target tenant segment: Decide on the renovation scope based on the target, such as students or families
- Estimate the cost recovery period: Calculate how many years it will take to recover renovation costs through projected rent. Set assumptions using realistic rent levels and occupancy rates
- Do not raise rent too aggressively: Even if you want to recover renovation costs, overly aggressive rent settings create the risk of not finding tenants
Is self-renovation a viable option?
Self-renovation can reduce construction costs, but quality and safety remain the owner’s responsibility.
Scope of work that can be handled through self-renovation
- Ceilings, wallpaper, and floors: Painting and replacement are possible (for large wallpaper sections, work by two or more people is recommended)
- Storage spaces: Installing hanging cabinets or modifying traditional storage closets
- Kitchen area: There are also modular kitchens, but electrical, gas, and plumbing work may require licensed professionals
How can rental management succeed even with older apartments?
It is important to inspect the property in advance, build renovation knowledge, define the target tenant segment, and run simulations based on the net yield.
- Check the condition of the property: Always confirm the condition of seismic reinforcement and water supply and drainage pipes
- Build renovation knowledge: If you can handle simple repairs yourself, it can reduce costs
- Clarify the target tenant segment: For single occupants, choose locations close to stations; for families, choose areas where the living environment is a priority
- Run simulations based on net yield: (Projected annual rental income − annual operating expenses) ÷ (property price + acquisition costs) × 100
- Choose a real estate company with strong leasing capabilities: The ability to use online channels effectively, a conveniently located office, and a large number of handled properties are important points
To improve the efficiency of property management, you may also wish to consider introducing a stress-free rental management system. We also recommend reviewing regulations related to rental management in advance.
Frequently Asked Questions (FAQ)
How much does it cost to renovate an older apartment building?
It depends on the scale and scope of the renovation, but partial interior renovations may cost several hundred thousand yen, while large-scale renovations may range from several million to several tens of millions of yen. Consider cost-effectiveness and prioritize the areas that best match the needs of your target tenant segment.
After how many years should renovation be considered?
As a general guide, around 20 to 30 years is one benchmark. Because equipment deterioration tends to progress around the time a property approaches its statutory useful life (22 years for wood-frame construction and 47 years for reinforced concrete), it is advisable to consider renovation early if occupancy begins to decline.
Which is better, renovation or rebuilding?
If the building’s structural frame is sound, renovation is generally more cost-effective. However, if there are concerns about earthquake resistance or the vacancy rate exceeds 50%, rebuilding or full-scale refurbishment should also be considered.
How much can rent be raised after renovation?
It depends on local market conditions and demand, but depending on the renovation scope, a rent increase of around 5% to 15% may be possible. However, an overly aggressive pricing strategy increases vacancy risk, so realistic pricing based on surrounding market levels is essential.
