How many have bought based on a nice list of value added (VA) possibilities and then crushed it with higher rents or income based on those VA elements? The short answer is few..... An ethical seller will in fact leave meat on the bone for the next buyer but that is rare. When there is income opportunity the vast majority will have taken advantage of that. The most frequent is "below market rents". Who doesn't see that on EVERY listing. Its an assumption. However, the 'market rents' are misleading and the realtors assessment in their report is often ********. In fact, if the rents are below market, why haven't they been raised. The best reason is because of deferred maintenance or needed repairs or upgrades to bring the unit to market rent. So there is some math to be done before accepting this assessment...that the new buyer only has to buy then increase rent to see 25%+ cash on cash returns : ) oh happy days.... uh...NO. Also, do your due diligence on rents, you could be buying a building with already raised rents that are actually above the market (check historical rolls). A 2/2 goes for 575 but yours are 550. Look at the sq foot rents and state of the apartments that are compared. Be Leary of this with there are many new apartments /new const in the area.... your market changes with many factors as well in a community so know what 'below market rents' means in reality. Mine are below market rents...but I just LOWERED them again because they were not renting so the realtor assessment of "market' is irrelevant the MARKET is what a tenants (or 90%) will pay in rent and that can be hard to know, not what the guy down the street charges. Mine are not so below market and I put a big flag in front...still waiting for tenants! However, in another property, I raised rents a lot after upgrades and did a rubs program (however in that town there re few apartments)...so there is merit to this concept but be CAREFUL and know the actual market and whats required to get those rents.
RUBS. This is great program but ensure you can meter your units (some you cant) or charge a flat fee by law. And consider that probably most properties don't charge water so you are .... changing your entire model to a pay for utilities system that may impact future market of your apartments. This is not so simple.
Laundry. Probable if a laundry was feasible, the last owner would have done so. Consider how long it will take to recoup the expense of a build out for laundry on a properly zoned and plumbed laundry room... and whats your income with leased machines vs owned. Is there a laundromat across the street or hookups inside. There are several considerations not just buy it and build a laundromat.
These are just a few but just be Leary of the sales pitch involving all those value add ones and realized that in most cases, if the owner could feasible make more money with raised rent or changes to utility billing or other ...he would have done so.
Don't be blinded by the value added elements.
Great points in here! I think you can emphasize the size of the market even more. You said one of your markets has few apartments - that's a problem! Few apartments and a small renter pool makes the value add strategy even more difficult, because the renter pool is small, the comp pool is small, and the competition can be steep!
I passed on a nice building just last night because it was in a small market, far out in the sticks. It was a nice property, but unfortunately located in a town with a population well under 1,000.
What population metrics do you look for in your submarkets?
@Scott Lang Well said, I'd also like to add to research average HH income in the area you're investing in to see if it could even support the increase in rent. Do your own homework and going over comps on like for like units and Square footage is key.
Agree. I use population/growth or decline.. types of / major employers (best are big stable companies like tech, universities, governmnet centers, hospitals etc). If its an industry soon to be gone I pass. I passed on several in Odessa pre election. Who knew. But still would pass because I assume most oil and gas will begin to dry up when dems take over (Im fine with that) but...Im also in east TX and West TX near Universities and a big food processing plant. Both have stable growth. But in one... a ton of over-building. In Oregon, zero unemployment and tons of people...but no housing so Im good but... they passed a resolution to build more housing...Dam! Not I dont know but still, that dictates I stay under the rents that those new buildings will be. In OR thats easy. I can advertise and under market. I priced West TX (my manager did by error) at market and poof....no applicants! So I lowered rents and am trying to fill it up with specials.