In our previous blog post, we discussed a few general strategies property owners can use to increase the value of their multifamily property. We briefly mentioned how increasing income is one of the primary ways of raising property value, and with so many ways of doing so, we thought it would be a disservice to readers to not further elaborate on the subject.
First and foremost, a property will never reach its full potential with a high vacancy rate. Nothing hurts a property’s income more than a high number of empty units, so finding and retaining quality tenants is a top priority. Factors such as advertising, marketability, and curb appeal go hand-in-hand with acquiring and maintaining tenants, but that’s a another discussion in itself.
Once an adequate vacancy rate has been achieved, only then can a property manager begin to truly maximizing property income. So what are the best “bang for your buck” strategies owners can implement? Hands down, the number one income booster for an owner is raising the base rent for each floor plan of the property. Even small increases like a 2-3% bump in rent can result in thousands of extra revenue dollars a year.
Additionally, building scheduled rent increases into leases can ensure a property is staying on par with its comparable market and remaining competitive. Raising rent increases income on an exponential level, so owners should always be looking to get the most revenue out of their units and amenities. Although, if a property owner is going to increase rents, they’ll have to spend money to make money. Raising rents have to be executed in conjunction with property improvements, otherwise, tenants won’t renew leases and move on to a property where they getthe best value for their money.
One of the best justifications of raised rent rates is updating units. Even though unit renovation requires an abundance of time and money, a property will not survive if it’s out-dated. So renovation kills two birds with one stone by keeping a property up-to-date and competitive while increasing the revenue and value of a property through rent increases.
Renovations don’t have to break the bank. There are numerous inexpensive materials that achieve the same aesthetic affect as more expensive products. Alternative materials like vinyl flooring or lightweight granite can save money while achieving the same look and feel as hardwood floors or quartz countertops. Ultimately, the key is renovating for your target audience. Spending extra capital on upgrades B or C class tenants don’t desire can be a waste of money and lead to higher vacancy rates.
Sometimes a property has updated units, popular amenities, and low vacancy, but still has room for increased revenue. In this case, there are a number of inexpensive, and sometimes free, strategies owners can use to create extra revenue streams. One source of free revenue is charging an application fee. Every potential tenant must go through a background check, and can create a potential problem for your asset, so application fees offset that risk. Implementing a pet fee has the same affect.
Parking is another source of untapped revenue properties can capitalize on. Even though not every demographic is willing to pay for covered parking, owners can implement an opt-in reserved parking program many tenants will find convenient. Reserved parking can generate hundreds of dollars in monthly revenue, efficiently organize the parking lot, and give tenants piece of mind regarding the safety and security of their vehicle.
Most multifamily properties require tenants to pay an upfront security deposit. The deposit protects owners and their assets and while acting as incentive for tenants to take care of the unit. having said that, security deposits can be a point of distrust in the tenant/owner relationship. Owners wonder if their units will be taken care of and tenants wonder if they’ll ever get their deposit back. One solution to this problem is a mandatory, non-refundable move in fee. Owners get to retain the move in fee and tenants see a lower barrier to entry. Furthermore, once a tenant moves out, owners can use the move in fee to turn the unit for future tenants.
All of the examples provided above are strategies owners can use to justify raising rents, which will lead to an increase of income, and hopefully achieve the ultimate goal of maximized property value.