How to add value to a 5-plex

5 Replies

Hi Guys, I'm currently working on a deal with a 5-plex building in the package.  I will sell off the 5-plex once I have successfully closed on the overall package.  (Basically to pay back my initial investors).  I'm wondering how to quickly (<6 months) add to the sale value of the 5-plex.   It's in pretty good condition and in a lovely B+ type neighborhood. So far I've thought about

Reviewing all the suppliers to reduce monthly costs 

Reviewing leases to see where rents can be raised (a lot are currently below market)

Doing a facelift paint and landscape and rebranding

Adding in self-storage units

Dog park? Gym? 

Units already have individual laundry, so that's not an option.  I feel a pool would just be an expense and not add value. Vending machines probably need more units to be successful. Units are individually metered.

Does anyone have anything creative to suggest that I haven't thought of?

Hi @Andrea Colfer

I know it might sound counterintuitive but does the floor plan / property setup lend itself to be converted into a 4-plex?  Assuming this wouldn't be a large hit to the overall monthly rent roll you might open up the buyer pool to people like myself that look to position 30-year fixed interest loans against large assets.  In addition, you could advertise as a house hacking opportunity and possibly command a significant premium considering supply is so low in many markets around the country. 

Not knowing the property setup and financials this might not work but just another perspective.  

All the best,

Scott Dixon 

@Andrea Colfer

I think you have a pretty good list..One thing I would add is pet fee's and or Pet policy. Also if there is a common area make sure it is all led.. Exterior lights on a timer?

My experience has been that B+ properties are difficult to value add, especially if they are already sub-metered. Keeping the vendors honest is probably where you will find the most value.

I wouldn't spend a lot of time on improvements that add nickel-and-dime income. You can spend $5,000 and get a $3,000 return.

Focus on the big-ticket items like rent increases. If you have pets, bump rent for that, as well. Ensure every tenant has an appropriate security deposit, a strong lease agreement, and they are good tenants that a buyer will want.

When it's time to market, focus on increasing sell-ability. Make it look fresh and clean. This includes curb appeal, the inside of every unit, common areas, etc.

Thanks for all the great replies everyone!

Nathan and Peter - It looks like getting all the leases on to market rents, improving the curb appeal, reviewing the energy efficiency of the common areas and pet policies, are the way to go so.

Scott - thanks for the advice on the advantages of a fourplex - it won’t suit this property but is definitely something to bear in mind for future purchases.

@Andrea Colfer , because it is a 5 unit, it is commercial and valued by its cap rate, so generally the only way to increase its value is to increase its net operating income. You will either have to find a way to increase its rent, or decrease it's costs. You can make it look nicer and update all you want, buyer if it doesn't generate more income, it's value will likely not change.

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