Commercial Real Estate, including Multifamily apartments, are mainly valued by the Net Operating Income of the property, which is the net income before taxes, interest, and capital expenses.
Because of that, the higher you can increase your Net Operating Income, the higher valuation you will receive at time of resale. You can cut down on costs, but generally speaking most costs go up over time due to inflation and tax readjustments at purchase, and so the best way to increase the net operating income is by increasing the property top line revenue.
Having said that, here are some of the most effective proven methods to increase income at a property:
- Renovating Units:
Bringing units up to current market standards and charging higher rents is the easiest and most effective way to raise revenue. If you can increase rents by $100 a month, over 12 months, would be the equivalent of $1,200. If the property has 100 units, that’s an annual increase of $120,000 per year. At a 5% cap rate, that would increase the value by $2,400,000 (120k/0.05 = 2.4M)
- Covered Parking:
In some states, like Texas, tenants want the option of protecting their vehicles from different weather conditions, and a solution to that is to add covered parking spots, which normally rent for $50-$60 per spot. $50/spot x 40 spots x 12 months = $24,000 per year. At a 5% cap rate, that’s a quick $480,000 increase in property value.
- Private Yards:
Tenants want their own yards just as well as anybody else to have pets or kids play outside. Adding private yards to ground floor units not only increases income, but also significantly increases demand with tenants that have families or pets.
- Tech Package:
A tech package in multifamily usually consists of updating the units with Smart Lights, Smart Locks, and Smart Thermostats. This gives the tenants the ability to control their lighting on and off through their phone, open the front door with a door code, and increase or decrease their thermostat through an app. It adds a high level of convenience and usually adds $25 per unit per month.
- Property Wide Wifi:
Instead of having tenants go out and get their own Wifi, where they normally get charged a set up fee and a high monthly charge, we can bring in Wifi directly to the property through multiple different companies and provide tenants cheaper fees with higher speeds. What’s in it for the property owner? Increased revenue and profits rather than outside companies. This creates a win-win situation for the tenants and the owners.
- In Unit Washers/Dryers:
Adding washers and dryers in the units brings a higher level of convenience to the tenants who happily pay a premium to not have to take their clothes to outside laundry facilities.
- Improve Curb Appeal:
It goes without saying that tenants want to live in a property that they can be proud of. One of the most effective ways to increase the appeal of a property to tenants, therefore increasing competition and pricing, is by renovating the exterior of the buildings and improving landscaping.
- Utility Savings:
Water is a very big expense, especially as the size of your property goes up. A very quick way to massively reduce expenses is by replacing old toilets with low-flush modern toilets, adding aerators to faucets, and changing shower heads. This quick change can typically reduce water expenses by 30%-50%. It’s a no brainer.
- Utility Charge Back:
Some properties come with an all inclusive rent rate that includes rent plus any utilities, including water, garbage, electricity, etc. In many circumstances, those fees can be separated and charged back to the tenants individually, so long as the property can stay competitive in it’s rent with those fees charged separately. It’s more common in older properties for this to be the case.
- Boosting Occupancy/Marketing:
The price of anything is measured by supply and demand. The more demand you can create for a product or a service, the higher the price goes. A very easy way to increase rents and increase occupancy is to simply implement better online marketing channels to send in more tenants, giving you the ability to increase rents due to demand and filling up more units without hassle. This is easily some of the best money you could spend.
At the end of the day, it’s important to remember that buying a commercial property, including multifamily apartments, is essentially running a business. You have to constantly increase your revenue while reducing your expenses. What’s most important is you provide the best living conditions possible for your tenants as those are your customers, and the better served they are, the longer they’ll want to stay.
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