The beauty about 5+ unit multi-family properties is that they are valued based off their Net Operating Income (NOI). This means that if you increase the income or decrease expenses of a property, then the appraised value will also go up. If you find a good value add opportunity, you can really sky rocket your net worth in a short amount of time. I wanted to go over some of the different ways to achieve this.
- Increase the rents: This is where knowing your market and what units will rent for comes into play. If you find a building that you know is under rented and has room for some rent bumps, this is the easiest way to increase the income of a property. This happens quite often with landlords that don’t want to upset their tenants so if they have long term tenants they will stay there without ever having their rent increased. Rents have historically increased over time so eventually these units become under rented compared to the current market rents.
- Bill back the utilities: There are often instances when landlords are paying utilities for tenants rather than having them be responsible for the bills. It is ideal to have tenants responsible for utilities. This will prevent over using the utilities, because the tenants know they will have to pay for whatever they use. If you find a property that the landlord is paying the utility bills for the tenants but there are separate meters for that particular utility, you know that you can start putting that responsibility on the tenants and increase the NOI. If some utilities are not separate, such as water often is, then there are ways you can separate it to track what each tenant uses. There is obviously a cost to doing this, but in the long run the decreased expenses from not having to pay for the utilities as the landlord often makes up for it.
- Washers & Dryers: Something as simple as adding coin operated washers and dryers in the basement of a multi family building can increase your income. Tenants will more than likely pay for the convenience of not having to drive to the laundromat. If you don’t add coin operated washers and dryers, you could possibly charge extra rent per month for the usage of a washer and dryer on site.
- Pet Rent: People love their pets! They love them so much that if you tell them they will be charged an extra $25-$50 a month for the ability to have pets in their apartments, they more often than not will. A lot of apartments don’t allow pets so you can usually charge extra rent if you are comfortable with allowing pets in your units. In my opinion, it’s more often how the owner trains the pet rather than the pet itself that determines how they act. Charging the extra pet rent will increase your NOI.
- Vending Machines: Just like washers and dryers, you could install vending machines in the common areas if you think that people will use them. You could put snacks and laundry supplies in these. If someone gets hungry while waiting for their laundry or runs out of detergent, they will use the vending machine that’s right there. A lot of companies even place and service the machines and you just get a percentage of the income.
- Parking/Garages: If you have room for off street parking or garages on site, you can charge a premium for the ability to use these rather than including them in the rent. Not only the residents, but outside people looking for somewhere to park their car might be interested. If you find a property that has the ability to implement off street parking in an area that was not used for anything before except wasted space, this could be a good value add.
- Storage Units: People can always use more storage!! This can be a very inexpensive way to add some extra income. If you have extra space in the basement you could throw some fencing/drywall up and create separate storage areas available for rent. If there isn’t a ton of storage space in the individual units, tenants might pay a premium to be able to use one of these. I’ve even heard of people building self storage units on extra yard space that was previously going unused. There is an initial expense for this, but after that it’s mostly maintenance free!
- Update the Units: This one might be obvious but if you spend some money updating the units they will demand a higher rent. With the economy doing as well as it is now, people are tending to spend the extra money for nicer units. This is especially prevalent in higher class areas. Increased rents will increase your NOI and in turn, the value of the property.
So there you have it. This is just a short list of possible value add opportunities for multi-family properties that will increase your NOI. If there are any creative ways you have found to add value to your apartment buildings feel free to comment below!!