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Increased Value Through Increased Income

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.

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Increasing Value

You just won the bid on that property you’ve been working towards for the past few months, so what’s the next step? Well, first you celebrate, because it’s no small feat beating the competition to become the new owner(s) of a multifamily property. Once you’ve toasted to your hard-fought victory, it’s time to start making the most of your investment. The most important factor in maximizing return on investment is increasing the value of your property as much as possible. 

Looking at it from the most simplistic standpoint, value is affected in two ways: Increasing income and/or decreasing expenses. Having said that, there are an abundance of ways to maximize your property’s income and minimize its required expenses. The most successful properties simultaneously and efficiently achieve both of these goals.

A good starting point to raise the value of your new property is making minor repairs and improvements you noticed when you initially toured the property. Improvements like fixing cracks in sidewalks, replaces window screens, or repainting doors or balconies will give your property the face lift it needs to rejuvenate its curb appeal. This can be an inexpensive way of increasing the marketability of your property and a stepping stone to greater improvements that will elevate it a new level of value.  

When it comes to decreasing expenses, one of our first courses of  action is implementing water conservation. Toilets use the most water out of all the bathroom fixtures, so installing low-flow toilets can save property owners a fortune in utilities. Also, toilets tend to leak, so proactive maintenance will save money in the long run.

In addition to water conservation, employing the right amount of staff is very important. Employing too many people can be a waste of man power and capital, so don’t be afraid to layoff a few employees if the property doesn’t benefit from their presence. Furthermore, hiring the right employees can greatly increase your properties value. For example, hiring a maintenance crew with a diversity of skills has multiple advantages. Most importantly, a multi-skilled maintenance crew reduces the need of deferred maintenance, thus, lowering overall property expenses. Additionally, being able to perform in-house maintenance means repairs and improvements can be completed much faster.

This post is meant to merely touch on a few examples of increasing value through increased income and decreased expenses, so keep an eye out for our upcoming blog posts as we will be discussing maximizing incomes and minimizing expenses in greater detail.

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Should You Be Investing Real Estate or the Stock Market?

Good investors are always looking to both grow and protect their wealth while weighing risk and reward. There’s no doubt the stock market and real estate investing are two of the best ways to achieve investor success. The hard part is knowing current and upcoming trends, and how they affect the risk and reward of current and potential investments.

As an investor, you don’t have to be exclusive to stocks or real estate. In fact, it is very common for successful investors to have a stake in both investment types. Having said that, every investor has their own preferences, motivations, and priorities when it comes to where and how they invest their money.

If you’re looking for information on which investment strategy best fits your needs and wants, click here to learn some of the advantages and disadvantages of real estate and stock market investments.

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Keys to Real Estate Investing

It’s no question real estate can be one of the best investment options when trying to generate passive income. But it’s not as simple as picking a building or plot of land and raking in the cash. A bad real estate investment can go south in an instant, and before you know it, you’re bleeding money.

Just like any other type of investment, the key is knowing current and future market trends, and making the best possible informed, knowledgeable decision. Simply put, being in the right place at the right time is the name of the game.

You can learn to make smart decisions with three of the most important keys to a good real estate investment in this article from Forbes Magazine.