12 Creative Ways to Add Major Value to Apartment Buildings

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Have you ever wondered why the big players in residential real estate investment don’t focus on single family homes, but instead buy apartments? There are several reasons for this, but the big one is control. Owners of larger multifamily property (5 units and greater) can control the value of their property to a much greater predictability compared to single family and small multifamily (2-4 units).

In apartments, the options on ways to increase the value of the property are only limited by the owner’s creativity. In this article, I will list just some of the endless ways to add value.

Before we jump into the list, let’s do a quick rundown on how properties are valued.

1-4 Unit Property

These properties are valued based on the comparable sales approach. This means if a 3-bed, 2-bath home in similar condition to your 3-bed, 2-bath in the same neighborhood or one very similar sold for $X, then your 3-bed, 2-bath home is also worth $X because that’s what the market has determined your property is worth. When you hire an appraiser, this is precisely what he/she is doing. They find comparable sales “comps” and use them to give your property a value.

5+ Unit Property

These are valued based on the income they produce. Everyone buying these types of property are buying them to make money, so that is the universal focus. To find their value, you find the net operating income (NOI). NOI is simply all the money you made minus all your expenses, not including the debt service payments. We don’t include the debt service because it can vary from one owner to the next. In other words, NOI is all the income the property can produce minus all the expenses the property requires to operate, regardless of who the owner is. Once we have the NOI, we divide it by the capitalization rate for the area. The cap rate is the rate of return the market has determined is adequate to deploy capital for this type of property.

If this is how apartments are valued, then we can see that if you are able to decrease expenses or increase the income, then the value of the property will go up. Even if you save one dollar, the value of the property goes up. If you want a more detailed explanation of how we find value on apartments, check out another article I wrote here.

If every dollar you decrease expenses or increase income adds to the value of the property, shouldn’t we all be trying to do that in any way possible? The answer is yes, but often owners only focus on the obvious, conventional ways, such as raising the rent. That is a good one, but as I mentioned before, the list is only limited by the owner/manager’s creativity. Below is a list of just some of those less conventional ways to add value to your apartment building.

Related: 7 Creative Ways to Add Bedrooms, Bathrooms & Other Value-Add Amenities to Your House

Before you skim over the list and think, “No thanks, that will only earn me about and extra $500 a year — not worth it,” know that this incentive isn’t the extra $500 in cash flow — it’s the increase in value. If your property is a 6% capitalization rate, that extra $500 a year adds $8,334 to the value of your property. Find 10 ways to add $500 a year income and 10 ways to decrease your expenses $500 a year, and you will have added $167,000 to what your property is worth.

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12 Creative Ways to Add Major Value to Apartment Buildings

1. Sub-Meter Utilities

We have all driven past that apartment building in the middle of winter where the tenant has the windows wide open, heat blasting. We also all know the tenant who never reports that their toilet is constantly running because they don’t pay for water. Depending on the mechanics of the property, sub-metering can be one of the largest value-add activities.

2. Washers and Dryers

The number one amenity currently added to rental leases are washers and dryers. This could add $40-75 per month to your income.

3. LED Lighting

If you are a long-term buy and hold investor, LED lighting in common areas is a no-brainer. First, it uses so little energy, you save on the utilities. Second, the bulbs last 25 years, so you aren’t paying maintenance to change them.

4. Vending Machines

Yep, the income produced from a vending machine can increase the value of your property. I have seen these in several settings: 1) in common areas, such as placing a drink or snack vending machine in a gym area or around the pool, 2) in common area laundry rooms that have laundry and other household essentials in them. Think single serving detergent, stain remover pen, carpet stain remover, fabric softener. The best part is you don’t have to buy the machine. Just like with coin laundry, many companies will place and service vending machines, and you get a percentage of the income.

5. Garage Parking

People can and do pay more to park their cars or have additional storage in a garage. Adding an additional charge for garages is common and can be worth building garages in some instances. A less expensive substitute would be carports.

6. Prime Parking

We all have done it — you turn into a parking lot and yes! — the front and center spot is open for you. Tenants will pay to reserve those special spots. Pop a few signs in the best spots that say “Reserved Premium Parking for Rent.” This will add more income to your bottom line, and the value of your property will go up.

7. Renovations

Although this one is pretty conventional, I thought I’d list it anyway. By renovating the interiors, common areas, or curb appeal you can increase demand, which will allow you to push rent rates up.

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Related: The Ultimate Metric You Need to Find Value-Add Apartment Deals

8. Trash Pick-Up Service

Do you have a full-time maintenance man on the property? Why not utilize him for custom services? A friend of mine had a resident who hated carrying her heavy trash bags to the dumpster. He then offered for the maintenance man to come pick up her trash outside her door two times a week and walk it to the dumpster for $20 a month. Other residents saw this and asked for the same service. Now it is an option for all his residents. The handyman makes his rounds twice a week and collects. Residents love the option.

9. Pet Rent

If you’re allowing pets and not charging for them, you’re missing out. I have seen pet rent as high as an additional $100 a month.

10. Storage Units

Have you ever lived in an apartment? Is there ever a good place to put all those boxes of old books, your bike in the winter, or whatever else you want out of the way? Well, most people are this way, and that’s why they are willing to pay for what is essentially an extra closet. For our units, we charge $19 and $29 respectively for 15 sqft and 30 sqft storage closets that were built into an old, unused laundry common area.

11. Cable Bill Kickback

In larger complexes, owners can sign exclusives with cable providers and receive a small kickback from when residents sign up for the service.

12. Renegotiate Expenses

As investors, we often focus on how to make more money. Just as important is how to spend less. In apartments, the operating expenses will include quite a few expense accounts. Landscaping, snow removal, cleaning, management, maintenance, dumpster fees, and many more items are all things you can look at for ways to decrease operating expenses. It could be as simple as calling around for quotes on grass cutting or calling the dumpster service and renegotiating the monthly fee.

In today’s market climate, multifamily is very competitive, and adding these unconventional value-add tactics is a great tool to have in your belt when they fit your property.

What I really want to stress is the value added to the property more so than the extra cash flow. Cash flow is good, but the value can be captured through refinance or sale. Multifamily allows control, and although everyone knows cash flow is king, creativity is a close second. With creativity and control, amazing wealth can be built in multifamily.

Apartment investors: Anything you’d add to this list?

Be sure to let me know with a comment!

About Author

Jered Sturm

Jered Sturm is co-founder and director of sales and marketing at SNS Capital Group. Jered began in the real estate industry in 2006, working for a successful real estate investment company as a handyman. From 2009-2012, Jered co-founded the construction company Sturm Properties. Using his background in contracting and construction, he began investing in “Value Add” real estate. Now, after co-founding SNS Capital Group, Jered has conducted over 10 million dollars in real estate transactions. He currently co-owns and operates a portfolio worth over 3.7 million dollars in investment real estate.

21 Comments

  1. Chad Carson

    Hey Jared, this is a really good list. Thanks for sharing. Value-add to apartments can make you a ton of money. I love the entrepreneurial aspect of it.

    I did have a couple of alternative thoughts, though. While I like this aspect of larger apartments, the disadvantage is that you always have professional investors buying from you. They want to make money, they tend to be better at negotiating, and they’ll always negotiate hard on price or other terms. 1-4 units are often mom-pop buyers. The cap rates tend to be lower, income expectations are lower, and the financing is much better. Appreciation might also go up without income going up if demand rises dramatically while supply is low. So sometimes it equals out.

    And “big time players” is sort of a funny thing. For most people on BP, I’d say don’t worry about being a big-time player. Buy what’s approachable for you. Get a few 1-4 units, finance them safely, improve the rents and values, and get them paid off. You can do everything you want in life financially without getting big time. In fact, it might even be easier staying small.

    Thanks again for the thoughts, Jared.

      • Mike Dymski

        Chad, this is good feedback and I’m sure that Jered will reply as well.

        There is not a lot of competition in the 5-100 unit space from professional investors and these value add opportunities in the article apply equally to those smaller apartments. Frankly, they may work better because that space is full of mom and pop owners.

        There is a misconception that commercial financing is far worse than residential. Fannie and Freddie experienced very little loss during the GRC in the multifamily product. In addition, they have a societal function to facilitate low cost housing. Because of these items, they have very favorable apartment lending products with up to 12 years fixed, balloon-free hybrid products, 30 year amortization, 1-3 years interest only, low rates, assumable, cash out refinance (i.e. supplemental loan), rehab funding, and non recourse borrowing to boot. Many apartment investors will also suggest that it is easier to close a commercial loan than a simple 1-4 family or HELOC. I’m dealing with a residential HELOC right now that is 3 months in process….insane.

        There are lots of very sharp SFR investors on BP who could run circles around existing apartment owners.

        SFR and apartments…both great strategies.

        • Chad Carson

          Hey Mike,
          Thanks for the comment. I obviously don’t know as much about the commercial lending market as I’ve not used it much. So I’m happy to learn some new info there. My perception has typically been built my loan products from local or regional banks keeping their loans in house. Exploring Fannae and Freddie commercial products is a good option.

          I agree – it’s not an either or is better with asset classes. So many factors to consider, including someone’s own market and personal preference. This is a good discussion to display those sides.

    • Jered Sturm

      Thanks for the Comment Chad.

      I see what you’re saying but in my own experiences, the process is easier with larger buildings. Motivated sellers come in all forms mom and pop are usually in management errors but large can do the same buying out of state hiring a bad management company or just the standard financial issues, death, bad partnerships, etc. I have bought both types of property and I prefer apartments by far.

      You also mentioned appreciation might occur, that’s a big maybe for me and I’ll take market appreciation when it comes but we prefer forced appreciation because it’s more controllable. Secondly, if the SFRs in a market are appreciating most likely the multi families are also seeing the same market appreciations through compressing cap rate.

      I strongly agree with your comment if you don’t want to be a professional REI and your goals only require 1-4 units than stay smaller, but as for it being less difficult I’ll have to respectfully disagree again I have bought both types and buying apartments is like buying business that can support staff buying a fourplex if like buying a project for yourself to maintain because the revenues just aren’t high enough to support paying staff.

      I really appreciate you giving a respectful alternative viewpoint. I think we both agree big or small real estate is a great wealth builder and is the asset class to be in!

      • Chad Carson

        Hey Jered,
        Good comments and I agree it’s a helpful discussion on both sides. Getting into either asset class can be good for people.

        I think my initial reason for responding that way was just to validate those who do choose to stay small. There are also big time payoffs financially from people who choose to own little properties. There is more than one path to being big time.

        One of my favorite books on that subject is Building Wealth One House a Time (also a course called Making it Big on Little Deals) by John Schaub. It’s a good for for people to pick up if they’re into the little properties.

        Keep the interesting articles coming, Jered!

  2. Great article Jered. The points highlighted by you are all pragmatic and relatively easy to achieve. However, a larger facility would be capital intensive as would be the management costs. So the trade off between going Big or remaining Small need to be carefully weighed.

  3. Josiah Pisel

    Jared, I always appreciate reading your articles. I find that often times the ROI on these value adds tend to be quite high with short payoffs. I too love the idea of forced appreciation and being able to control the value of larger multifamilies and not rely/hope for market appreciation. I am looking forward to getting into large value add multifamilies in the near future!

  4. Wade Williams

    Great article Jered! I will be stealing a few of these ideas to try out at my 331 unit community.

    One fairly new income source that is catching popularity is community service perks. These would include things like:

    • Offering furnishing options
    – Working with furniture rental companies, you can recieve commissions for referrals – great option for short term or traveling renters and the vendor handles everything
    • Community car
    – Companies like ZipCar are popular in downtown communities because of problematic parking – by having a designated community ZipCar that residents can use, you provide travel means for those who can’t make the bus and can work out a commission structure with the provider
    • Dry cleaning drop off
    – This is more geared towards on-site management communities – work out a deal with a local dry cleaner to stop by and pick up/drop off dry cleaning – most residents who have clothes dry cleaned are willing to pay a bit extra for the convenience of having it in-house
    • House keeping
    – Most multifamily property owners have great deals with cleaning vendors – offer scheduled cleanings provided by your cleaning vendor and work out a “per unit/per clean” commission structure

    This is just a few of many perks out there. Think about conveniences that residents would enjoy and find a way to monetize it. Not only are you getting additional income, but pitching a prospective tenant all the perks offered by your community can be great marketing. Setting this up takes little to no money and is worth an investment of your time.

    If anyone wants more information on structuring community perks, send me a message and I would be happy to help!

  5. Peter Mckernan

    Hey Jered,

    These are some great tips! The LED tip and prime parking are great examples of what an investor can do to increase their bottom line. It’s the items that can be spread out over the whole property and used by every tenant that can add value tremendously.

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