Increasing value of Multifamily Properties
Hey, All.
I'm looking to purchase a mid-sized multifamily property with a partner. He's providing the bulk of the funding; I'm analyzing the deal. Where I'm stuck is figuring out how to add value. I understand that MF's are priced according to their NOI. What are some creative ways to increase cash flow/reduce expenses, in your experience?
Sb: These properties already come with washer/dryer sets and if you know of a way to find MF deals for LESS, you’re also welcome to respond.
Thanks a lot!
There are two knobs you can turn, income and expenses. Increasing income, decreasing expenses.
I prefer to target increasing income, because expenses can only be reduced so far until you start skipping critical maintenance and generally skimping out. We will typically update the kitchen, floors, and generally improve the exterior to target increased rents. Look at comparable properties in the market to determine what the potential rents are.
Quote from @Oladimeji Sonibare:
Hey, All.
I'm looking to purchase a mid-sized multifamily property with a partner. He's providing the bulk of the funding; I'm analyzing the deal. Where I'm stuck is figuring out how to add value. I understand that MF's are priced according to their NOI. What are some creative ways to increase cash flow/reduce expenses, in your experience?
Sb: These properties already come with washer/dryer sets and if you know of a way to find MF deals for LESS, you’re also welcome to respond.
Thanks a lot!
Not every property can have the value improved so make sure you are choosing something with that opportunity. Renovating to get the tip top rents for the area can be a great NOI improver in the short term but depending on the area you are investing in that might call for larger rent delinquencies, evictions etc.
Putting the utility expenses on the tenants is a great way to increase NOI without fundamentally changing the business operation in any way. I have seen large MF properties that are separately metered and the owner covers the expenses; very odd.
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@Oladimeji Sonibare, main ways to add value are as follows:
#1 Increase the Rent. Call some apartment complexes around and ask how much they rent the units for. If you could go see the units that will be great so you know what level of rehab you need to achieve these values.
#2 Increase Occupancy: Fill out the vacant units by remodeling or/and doing tons of marketing.
#3 Charge tenants for utilities if you are not already doing so. If there is only a single meter for all the units look into RUBS. Make sure to include pest control and trash collection if applicable
#4 Add amenities that could give you more cash per month (i.e. vending machines, laundry room, storage)
#5 Minimize your expenses. i.e. If you pay for a portion of the electricity bill, make sure you switch to LED lighting, this will cut your light bill by a lot. The same with water, install water efficient toilets, etc.
#6 if your property is less than 20 Units, manage yourself. Use RentRedi or Cozy, these are great for small multifamily and it is really easy.
It is all about getting creative and come up with ideas of increasing income and reducing expense. Please free to IM me if you have any further questions
Best of Luck!
After 15 years in multifamily, I found that investing in a strong maintenance program paid dividends in the long term. Happy tenants usually renew for 3 to 4 lease cycles if they received a good product and prompt maintenance response when needed.
Vacancy and Make Ready costs are the largest killer of noi.
Unless the property is newly renovated inside and out and the rent is at the top of the market for those units, there's always a way to increase income from rehab and improvements. We've updated a number of units and were able to increase the rent a lot just from that. Electricity is paid for by the tenants but we pay for the water. We charge them each month for water as an additional charge on top of the rent. With this, we aren't decreasing expenses, but just increasing the rent.
As far as expenses, we've found that nickel and dime expenses are killing our overall COC return and NOI. We are to the point where we are spending a lot on capital expenses with new HVACs and water heaters so we can avoid continuing to repair these units each month. In the long run, this will reduce our expenses and improve the NOI.