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Increasing the Value of Multi-Families: Vending and Zone Coverage

by Kyle Koller on August 31, 2009 · 3 comments

  

As investors, we’re always looking for ways to increase the value of our properties. Most of us are familiar with the more conventional ways of doing so: decreasing expenses and increasing income. What if I told you it was possible to increase income without raising rents or decreasing expenses? Let’s explore a few ways that is possible.

Increasing Value with Vending Machines

If you own a fairly large complex, it would make sense to install a vending machine. Assuming you’re an expert of your market, you could effectively target your tenants by placing products you know your tenants would want in the machine. The best place to put your vending machine is in an area that generates a solid flow of tenants; the laundry room or near the pool (if you have one and your property is located in warmer markets) are two good choices. Even modest vending revenues increase the property’s value significantly. Assuming the property is in a 6% Cap rate area with yearly vending revenues of $720, you would have increased the property value by $12,000! Not too shabby given our modest revenue assumptions.

Tapping rarer, but more lucrative, value potential

Do you know how your building is zoned?

“Well, duh, it’s residentially zoned.”

That’s not quite what I mean. Have you really dug deep to see specifically how your building is zoned? Understanding zoning could mean the difference between acquiring an average investment or an outstanding investment. Allow me to elaborate.

Examine Your Parcel’s Zoning for Hidden Gems

A residentially zoned parcel of land will allow a limited number of dwelling units. Do you know what the limit is on your property? If a property has 6 units, but the zoning code allows for 7 units, then that owner could be sitting on a gold mine. Let’s assume a seventh unit would bring in a monthly rent of $1200 ($14,400 annually). With expenses at 40% of the Gross Scheduled Income ($5760) and 4% vacancy/credit loss ($576), this owner would be netting an extra $8064 in Net Operating Income. More importantly, he would have increased the value of his property by $134,400 in a 6% Cap rate area (value=NOI/Cap Rate). That’s a significant chunk of change.

Of course, zoning is not quite that simple. There are various restrictions that may not allow you to add that seventh unit. Perhaps there is a minimum required number of off-street parking spaces per dwelling unit. If you can’t meet that requirement after adding another unit, well, you can’t add that extra unit. There are a number of other zoning requirements that vary from municipality to municipality. While shifting through the various zoning regulations is tedious, it could very well prove to be a lucrative venture.

Happy investing!

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{ 3 comments… read them below or add one }

AW August 31, 2009 at 2:23 pm

Never underestimate convenience and a well placed vending machine is the perfect solution.

Reply

Amy Larson September 1, 2009 at 9:51 pm

Could you possibly do a follow-up post that goes into detail about how one would examine their zoning to see about building on their commercial properties?

Reply

Kyle Koller October 6, 2009 at 8:46 am

Amy,
That is certainly something I will consider. Stay tuned!

Reply

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