When is the right time to start renovating a commercial property?
For example, let’s say I bought an apartment building with 10 units for $1m at $100k/unit with each unit renting at $1k so $10k a month or $120k a year and a 50% expense ratio so $60k NOI and a 6% cap rate.

When would I start renovating. I understand the bit where you analyse and run the numbers, look at the debt and whether the property could service the debt and increasing income and reducing expenses to boost the NOI and thus the property value.

However, I hear people talk about renovations. When do I decide to perhaps rent a unit is it when a tenant leaves and if the unit is in bad condition. By bad condition does that mean torn wallpapers, cracks in walls etc what else? Please help this is the only bit I’m stuck on.
[{"id": "fxkc199", "text": "It's easier to remodel without a tenant occupancy.", "replies": [{"id": "fxkf4yd", "text": "Ok I understand. However, if a unit is in bad condition and seriously needs remodelling and a tenant is occupying the unit what do you do? What remodels do you do? Paint the walls, fix tiles etc", "replies": [{"id": "fxkmpmy", "text": "it depends on how bad the unit is. maybe you can move the tenant to a newly remodeled unit then you assess the problems.\n\nyou wont paint the walls and leave a rotten floor. you wont put tile over broken walls. you wont fix trim molding when a window leaks.  you do what must be done to bring a unit to a livable condition.\n\nthere isn't a simple formula that'll work every time.  REI isn't a science even though many parts are.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fxkcki2", "text": "I look at each unit as an investment in itself. If it's renting for $1500 and market rate after renovation is $2200, that's $8400/yr in increased revenue. Now what is that reno going to cost me? $50k? That's a 17% CAP, i would do that. As far as timing, as people move out is pretty normal. My company generally buys a property and slowly gets rents closer to market. This causes some turnover and then you renovate as they turn over. I expect that a certain number of people will stay and that's okay. If I bump rent from $1500 to $1950 and they stay, that's great for me too. Now I'm getting closer to market rent.  At those numbers I might even want them to stay. Now the difference between what they pay  ($1950) and market ($2200) is only $3000/yr. That same $50k reno budget is now a 6CAP. I'd rather use that money to do the other units.", "replies": [{"id": "fxkfkei", "text": "Ok so when you refer to an increased market rate after renovation do you mean you could charge higher rents. For example, if you add air conditioning to a unit and raise rent from $1500 a month to $1550 so a $50 increase.", "replies": [{"id": "fxkhs6y", "text": "Well you need to know comps in your area. If there are apartments with AC, granite, wood cabinets, new finishes, etc those are the comps for your post renovation unit. In some markets there is a limit to how much you're going to get for a unit just based on the geographic area. if you look around and brand new units with nice finishes are only renting for $50-75/month more than your units then it doesn't make sense to drop $50k into a renovation.", "replies": [], "depth": 3}], "depth": 2}, {"id": "fxlz825", "text": "&gt; If it's renting for $1500 and market rate after renovation is $2200, that's $8400/yr in increased revenue. Now what is that reno going to cost me? $50k? That's a 17% CAP,\n\nYeah, that's not how cap rates work.", "replies": [], "depth": 2}, {"id": "fxnaa17", "text": "Roi. But that 50k Reno increased property value by 8400/.06 = 140k", "replies": [], "depth": 2}], "depth": 1}, {"id": "fxr75ja", "text": "Where did the $1,000,000 price come from?  That's a 8.33 GRM.  Is that market?", "replies": [{"id": "fxswo2t", "text": "No it\u2019s just a random example that I\u2019m using as an example. I was thinking add numbers etc would help make things easier to understand and answer the question.", "replies": [], "depth": 2}, {"id": "fxswq3m", "text": "Also I\u2019m assuming a 8.33 GRM is good. I\u2019m also assuming that any GRM less than or equal to 10 is also good. I don\u2019t know.", "replies": [{"id": "fxsy85f", "text": "GRM's are an income approach to value.   There is no good or bad.  If similar buildings have sold for a 5 GRM then your $120,000 gross rents are only worth 5 X $120,000=$600,000.  But you would want to know that the GRM comps were in similar condition to your property.", "replies": [{"id": "fxsygc7", "text": "Yes I know that GRM\u2019s are however what I\u2019ve noticed is that when many people discuss real estate deals I\u2019ve seen such as on BiggerPockets etc they never really mention GRM it\u2019s mainly cap rate, NOI, COC etc. \n\nHow would I know if a certain GRM is good do I look at other properties comparable in my market. For example if properties in my market are trading at a GRM of 10 then buying a property at a GRM of 9 may be good right?", "replies": [{"id": "fxszhox", "text": "Biggerpockets if full of scammers and novices pretending to be players.  There are probably less than 5% of the people there that know what they are talking about and the site does nothing to correct misinformation.\nGRM's just like cap rates come from CLOSED sales of similar properties.  If the comps say people have paid 10 GRM then why would someone sell to you for 9   Now it could be the market is changing, the seller has a need for a quick sale or the seller knows something you don't.\n\nCap rates are the same.  They come from analyzed closed sales.  Anyone that wants you to calculate a cap rate based on their asking price is a scammer.  Anyone that tells you a cap rate is a \"return\" is a scammer.  Anyone that can't produce 3 verifiable cap rate comps is an idiot. Cap rates are used to value NOI period.  In a 10% cap rate market it means investors HAVE paid $10 per dollar of NOI.  In a 5% cap market investors HAVE paid $20 for that same possible dollar of NOI.  Anyone that tries to tell you 10% is better than 5% does not know what they are talking about.  Beware of people that throw real estate terms around but can't clearly explain what they mean.", "replies": [{"id": "fxt16eg", "text": "Well on BiggerPockets I usually look at the credentials and many professionals have premium memberships they pay for which are signs they are legit, they have company credentials such as president of a real estate construction, investment or syndication company which I can easily doublecheck on google and some are on podcasts. \n\nIt\u2019s not easy to fake these stuff. Also obviously I research some stuff to make sure what they say makes sense and is accurate and I double check with others and if lots of people are saying similar stuff it\u2019s likely true.", "replies": [{"id": "fxt1xap", "text": "Premium memberships!  Ha!  That was a pretty good move for the owners of the site.  I liken it to a fishing license.  Scammers pay money to be called a \"pro\" so they can fish in the barrel of novices.  \n\nJust because someone has a podcast or a self published book doesn't mean they know what they are talking about.  If you look on the youtube they are always interviewing each other to make you think they have credentials. They are shilling for each other!  Most have only a few years of experience and anyone that hasn't made money in the last 10 years of up market would have to be a real dunce.  It is so easy to make yourself a CEO, CFO blah blah blah.  I don't know how a novice  could navigate those shark infested waters.", "replies": [{"id": "fxt2ffj", "text": "Yes I understand your worries. Also none of them have tried to sell me anything so I\u2019m not really worried. If only they are giving out is free information there is not much harm. I can always double check the information. Also I don\u2019t rely solely on premium memberships it\u2019s just one factor of authenticity.\n\nFor example, on LinkedIn a successful businessman with a successful business who has a LinkedIn profile would probably have a gold badge or verified profile.", "replies": [{"id": "fxt3n1v", "text": "&gt;  they are giving out is free information there is not much harm.\n\nFree misinformation?  That is probably more harmful that no information.  \nCheck out Brandon selling you crap.  https://www.youtube.com/watch?v=iI1y2xZ4K_Y&amp;t=25s  repeatedly!", "replies": [{"id": "fxt3y9x", "text": "I know Brandon Turner from BiggerPockets I wouldn\u2019t say he\u2019s a scam. He actually owns property and has a syndication firm I forgot what it was called. \n\nAnyways people who own property I trust more because at least they have experience and even if their knowledge is not the best it at least got them to building a property portfolio. \n\nMany people say Grant Cardone is a scam. You may know him from YouTube or other social media. His company Cardone Capital has nearly $2B of AUM but the website stated $1.88B I think last time I checked. \n\nCheck SEC Filings and search the properties it\u2019s obvious he owns them so there is no scam and he offers a lot of free information on his YouTube  channel and other social media\u2019s etc. \n\nYour probably thinking why would a guy with billions of dollars worth of real estate to manage teach people his craft and create competition well it\u2019s simple he wants to get people invested with him at Cardone Capital. You can learn some valuable information from him. He also has paid courses as another source of income. Search him up.", "replies": [{"id": "fxt4fjr", "text": "&gt; I know Brandon Turner from BiggerPockets I wouldn\u2019t say he\u2019s a scam.\n\nI would.  Check out his youtubes that are so wrong it is ridiculous.  2% this 70% that!  Must know terms but he then can't define his own terms.  Where do you think he gets his money.  He ignores anyone that calls him out. He has created a profitable website and uses it to get people to fund his projects.  Shoot, Clayton Morris was a BP member.  He does what it takes to make money but takes no pride in his product.", "replies": [{"id": "fxt4ic4", "text": "Well people have their own ways of doing stuff that works for them. When investing in real estate everyone has their own ways of doing deals.", "replies": [{"id": "fxt4r1h", "text": "You've been trained well.  That is exactly what the scammers say.  The thing is that there are some actual terms and formulas that work one way.  The scammers use these incorrectly to, well scam.  \nFunny, I had a conversation with a BP member and I asked him why he was misleading his clients when he knew better.  He said if he didn't lie to them initially they would go with his competition.  ...I suggested he educate but he took the easier route.", "replies": [{"id": "fxt4xgg", "text": "? I\u2019m not a scammer. My point is that there are many legit people who unfairly get called scams. A huge red flag is selling products or services etc. I mean if they are offering me free information and not trying to sell me a product or service I mean I don\u2019t see much harm and it\u2019ll give me a chance to see if they are legit or not. \n\nAlso no webinars that\u2019s usually a red flag as they try to up sell you at the end and it\u2019s always prerecorded and they say bs like spam 1 in the chat if your here just to make it seems more realistic.", "replies": [{"id": "fxt5abz", "text": "&gt;? I\u2019m not a scammer. My point is that there are many legit people who unfairly get called scams. \n\nI didn't call you a scammer.  It appears that you are being groomed by the misinformation that you are getting at BP.  When a scammer approaches you it will be easy to scam you because you have learned real estate incorrectly and you will think if rents are 1% then it is profitable or that expenses are 50% or that a 10% cap rate is twice as good as a 5% cap rate.  \n\nWho do you think is being unfairly called a scammer?  They are probably on my list of scammers.", "replies": [{"id": "fxt5ck3", "text": "I don\u2019t rely solely on BiggerPockets I actually haven\u2019t used it in a while. I gather info from various sources.", "replies": [], "depth": 16}], "depth": 15}], "depth": 14}], "depth": 13}], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}, {"id": "fxt2hqt", "text": "&gt;  if lots of people are saying similar stuff it\u2019s likely true.\n\nThat is how shills work. I went to a timeshare event in SF about 20 years ago because they were introducing a points system that was new and I wanted to know how it worked.  Probably 15 tables.  Balloons and very festive.  Suddenly a bottle of champagne was popped and someone was gushing how they made the best decision ever.  OK, there is always an idiot.  Then another \"POP\" and another.  I'm thinking this is weird.  They were asking about $35,000 of points that would get you 2 weeks in SF.   Twenty years ago!  Then another \"POP\"!  OMG, it is getting exciting!\n\nLater I figured that probably 10 of the tables were salesmen trainees and there was only me and maybe 4 other people that were actual marks.  So they train their staff, spend $15 on 5 bottles of cheap champagne and if they get 1 $35,000 sale they made their day!", "replies": [{"id": "fxt2keh", "text": "Ok I understand. I get it you can\u2019t trust anyone but some things make someone more trustworthy.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]