Renovation Pace and Lease-Up in Value-Add Underwriting: Modeling the Dip
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In a value-add apartment plan, each renovated unit is offline for some weeks (empty while it is worked on and then re-leased) before it earns a higher rent. That makes income dip before it rises. Renovation pace, the number of units started each month, decides how deep the dip is and how soon the premium arrives. Model it month by month instead of as one average. In the example below, renovating 4 units a month lowers year-1 income by about $51,000 net and takes 25 months; 8 units a month lowers year-1 income by about $102,000 but finishes in 13 months and earns about $133,000 more in year 2.
This post is part of our guide to real estate syndication. It shows how to model the plan one month at a time and what it means for reserves, loans and distributions. Figures are as of November 2026 and the example is illustrative.
A worked example: two paces
A 100-unit building rents at $1,200 a month. Each unit is offline 1.5 months (renovation plus re-leasing) and then rents for $150 more. When every unit is done, the premium is $180,000 a year. The figures are an example.
| Pace | Months to finish | Year 1 (lost rent, premium, net) | Year 2 net | Year 3 net |
|---|---|---|---|---|
| 4 units a month | 25 | −$84,000, +$33,000, −$51,000 | +$32,400 | +$168,600 |
| 8 units a month | 13 | −$168,000, +$66,000, −$102,000 | +$165,600 | +$180,000 |
The faster pace costs about $51,000 more in year 1 and gains about $133,000 more in year 2. Over three years it comes out ahead, if leasing keeps up. If renovated units sit empty longer than 1.5 months, the faster pace loses more.
What limits the pace?
- Natural turnover. Most plans renovate units as residents move out, so the pace cannot beat move-outs unless the plan relocates residents or does not renew leases. Check the lease expiration schedule in the rent roll; see reading a rent roll and T12.
- Contractor capacity and materials. A crew can only finish so many units a month.
- Renovation draws. Lenders often fund the budget in draws after work is inspected, so cash timing matters. See renovation draw schedules.
- Leasing demand. The market must absorb renovated units at the new rent. See rent comps.
- Local rules. Notice periods and limits on rent increases or non-renewals. See rent control laws.
How to model it
- Schedule units by month from the lease expirations and the crew's capacity.
- Set downtime per unit: renovation days plus marketing and leasing days, from the contractor and the property manager.
- Apply the premium only after a unit is leased, at the rent renovated comps support.
- Add the vacancy of the renovated units to the vacancy and credit loss line in those months; see economic vs physical occupancy.
- Check coverage and cash month by month against the loan payment and reserves; see break-even occupancy.
What should investors look for?
- A renovation schedule by month, not a single "year 2 stabilized" line.
- Downtime per unit and the source for it.
- The premium compared with renovated comps nearby.
- Reserves and an interest-only period that cover the dip; see syndication reserves.
- Distributions that start low or late if the dip is deep, rather than a high year-1 target. See the value-add business plan and renovation budget per unit.
Projections are estimates, and every investment can lose money.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units from their friends and followers. The sponsor enters a few deal numbers and DoorRaise computes the projections on the deal page. DoorRaise forms the deal's LLC, prepares the offering documents, files Form D and verifies every investor's accreditation, in 506(b) and 506(c) deals. Investors fund by wire into escrow at Enterprise Bank & Trust, and distributions are quarterly by default. DoorRaise charges two flat fees: $1,500 to set up (non-refundable) and $5,000 a year for administration, the first year paid at closing from the money raised and only if the deal closes.
Plan the raise around the dip with the free raise planner, then start your deal.
FAQ
How many units a month should a value-add plan renovate?
As many as move-outs, crews, draws and leasing demand allow without leaving renovated units empty. Build the schedule from the rent roll's lease expirations and the contractor's capacity.
Why does income fall in the first year of a value-add deal?
Renovated units are empty while they are worked on and re-leased, so rent is lost before the higher rent starts.
What is downtime per unit?
The time a unit earns no rent during a renovation: the work itself plus marketing and leasing it at the new rent.
How do you fund the income dip?
With reserves raised at closing, an interest-only loan period, and a distribution plan that starts lower until renovated units are leased.
Is a faster renovation pace always better?
No. It shortens the plan and brings the premium sooner, but deepens the early dip and fails if leasing cannot keep up.
Sources
- Fannie Mae Multifamily Selling and Servicing Guide
- U.S. Census Bureau, Housing Vacancies and Homeownership (CPS/HVS)
This article is general information, not legal, tax or investment advice. The example building and figures are illustrative. DoorRaise is not a lender, law firm, broker-dealer, investment adviser or funding portal.