3 Affordable Ways to Add Value to Your Multifamily Property [Video!]

by | BiggerPockets.com

There are a bunch of ways to add value to your multifamily deal, such as upgrading kitchens and baths, which will yield a higher rent from prospective tenants. You can also separate utilities to pass expenses onto the tenants. We have done both, but investments like this can be costly, even if they do have a high return.

What about ways to add value that are on the more affordable side? Watch the video to see what we did specifically to add real value at little cost.

Related: Swap ‘Til You Drop: Multifamily Tax Avoidance Tips from Closing Table to Inheritance

3 Affordable Ways to Add Value to Your Multifamily Property

1. Increase the profit of the property.

The first way to add real monetary value is to do something that increases the profit of the property. Increase rental revenue or decrease expenses—sounds like a simple way to add value, right? Well, it goes beyond that because although you are now enjoying more cash flow from your rental, you are also increasing its value through something called forced appreciation.

Here’s how it works: Multifamily properties are evaluated based on cap rates. A cap rate equals the net operating income (NOI) divided by the value of the property. If you increase rents or decrease expenses, even by a small margin, your net operating income will go up. If your property is evaluated at the same cap rate, the only thing that can happen is your value goes up. Let’s run through a quick example. Let’s say you add 4 storage units to your property and lease them for $30 each, or $120 per month, which is $1,440 per year. Storage units arguably don’t have any noticeable expenses, so that’s all profit. If your property is evaluated at a cap rate of 10%, your value goes up by $14,440! Not bad, and I can tell you that 4 storage units cost quite a bit less than that, so it’s a great investment.

2. Create a sense of security for your tenants.

The second way to add affordable value is to create a better sense of security for your tenants. If your tenants don’t feel safe where they live, they will move. It’s that simple. Creating a safe living environment can indirectly decrease your vacancy rate. If you make improvements to the property’s safety, make sure your tenants are aware of the upgrades. It will go a long way. Watch the video to see the affordable upgrade we implemented.

Related: How to Beat the Coming Housing Slowdown With a Value-Add Multifamily

3. Add affordable amenities.

The last way you can add some value is by putting in affordable amenities to your multifamily. There are big, expensive amenities you can add that work on large apartment complexes, such as pools and workout rooms. But remember, the point of an amenity is to make life easier on your tenants. It doesn’t matter how much it costs; it just matters that they use and appreciate it. In today’s video, you will see how we added an amenity and also created an additional revenue stream.

[Editor’s Note: We are republishing this article to help out our newer readers.]

Be sure to watch the video to see the implementation of these different ways to add value! Do you have any other ideas on how to add value at a reasonable cost?

We are all ears—share them in the comment section! Thanks for watching and have a great and profitable week!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area.

One of DeRosa’s mantras is “to make money while making a difference.”

48 Comments

  1. Jovan Hardwick

    Great video Matt and as always lots of information and value. Question Matt, sine you have an apartment and storefront the building is more towards the commercial side than residential right? So you will use a cap rate instead of Gross Rent Multipliers for the 1-4 units.

  2. Tom Donnelly

    Thanks for posting Matt! For tenants that were already in the property while you were building the storage units, did you give them the option to increase their rent for access or let tell them that rents were increasing because of the new storage?

  3. Moshe H.

    Great video Matt, thanks! I was wondering, on my 4 unit there are separate natural gas lines and hot water heaters for each tenant, and no common ones. So to put in a “landlord” washer/dryer how could I provide hot water? Is there maybe some kind of small electric hot water tank I could use just dedicated for the washing machine? (There is common electric.)

    • Matt Faircloth

      Hey Moshe,
      Great question. On this building, there is one hot water heater and it’s on the landlord so no biggie to pull hot water off it. We added washer dryers in buildings like yours and put in a small electric powered hot water heater dedicated to the wash machine. We didn’t pay much either. It was a few years ago so I don’t remember the specifications, or I would send that to you also.
      Good luck!
      Matt

  4. Cindy Rack

    Thank you for a great video and the information. I do have a question. Most of my properties are single family and duplexes. I don’t think it’s beneficial to put coin operated washer and dryers in single family homes not because of the cost but because of the expectation of the tenant that it’s not coin operated. However, what do you think about putting them in duplexes?

    • Matt Faircloth

      Hey Cindy,
      I think the break point for a good return on investment is 4 units. You can try it in a duplex if you have owner paid hot water and electric but your ROI will be more than 2 years to get your investment back. I would ask the tenants if they would use it. You may be able to create happier tenants which will make them stay longer.
      Another option is to offer to install washer dryer hookups in their apartments if they agree to pay an additional $100 per month in rent. That hook up should cost you $1000 or so, which is less than a 1-year return.
      I hope that helps!
      Matt

  5. Paul Moore

    Nice job, Matt. Great ideas. I’m trying to figure out if it makes sense to try storage units at our new multifamily assets. Maybe try a few as a test market first. Or pre-lease them before we build them. What are your thoughts on that?

    • Matt Faircloth

      Hey Paul,
      We are looking at building them on a 49 unit site we have in Lancaster PA. I just asked the manager to send out a poll the the tenants. We ask them if they would use it, how big they would recommend the unit to be, and how much they would pay. Around half the population got back to us, it was great. They really helped us design the model with their feedback. I didn’t ask them to commit to it up front though.
      I think I am going on your podcast next week? Looking forward to it!
      Matt

  6. Jack Edgar jr

    Great advice. One quick takeaway thought worth sharing is in regard to the storage units survey to tenants: have a simple question of whether they are currently renting a storage unit and possibly following it up with “if so, what their cost is currently”. Great stuff thanks for the post.

  7. Derrek Lawson

    Nice video. Thanks for these easy value add tips.

    Questions about the security camera: Where is the data saved? An on-premise HDD, or cloud storage service? Do you have separate internet service for the business there?

    Comment about security camera: Anthony Melchiori of Hotel Impossible, suggests putting security cameras up out of arms reach, and to go wireless and/or hide the cable.

    • Matt Faircloth

      Hey Derrek,
      There is a central station device that came with the system. That station has a hard drive that records 5 days worth of data. We have internet service but it’s not required to watch the videos on site. We have it so we can pull the data from the camera system from our office if needed.
      Good point on the camera location!
      Matt

  8. How about the idea of attracting the best tenants by creating value from the viewpoint of the tenants? I would put in the storage without raising the rent so that the tenants see they get more for their money by renting with me. Every apartment building provide laundry facilities as a standard feature, and the rent should still the tenant as a good value for their money. I don’t think a tenant would not want to hear you want to raise the rent $100/month to have access to a washer and dryer. The laundromat only costs about $20-30/month. Most families only do a couple loads a week. When I was a tenant, I did about 9 loads a month for a family of four, and hung the laundry outside most of the time. I also think all apartments should have clotheslines. There is nothing better than the sunny scent of air-dried bed linens.

    • Matt Faircloth

      Hey Katie,
      Good point on using the storage as an addded amenity. If you can show that tenants are more likely to renew with you because of the storage at no charge, then it still adds value.
      To clarify on the laundry, the main revenue comes from the coins from the machines, not additional rent.
      Thanks for the comment!
      Matt

  9. Stephen Lee

    Hey Matt,

    Great post and great advice. Completely changed my opinion of adding the coin operated washer and dryers! Are there any companies that you know of in Baltimore City that will lease the basement space in order to put in their equipment?

    Do you mind recommending a certain security camera set up? A lot that I have looked at only work if there is wireless internet that they can connect to.

    Thanks in advance!
    Stephen Lee

  10. john moon

    Great video and tips Matt! I have a triplex that has an unused basement. I am going to look into adding some storage as well. I also have to pay for the hot water, so maybe I’ll add a washer and dryer down stairs… I’ll need to consider this in my budget. My renovation cost a bit more than I wish so I’m not sure if I want to add this extra cost..

    How would you have handled the case where there are existing tenants but you decide to add storage unit during this time. Would you go and increase rent or simply charge them a monthly fee for use?

  11. Adam D.

    Hey Matt, I see in your video that you have a sign on each of the storage units with print too small to read in the video. Are these the rules of what can and cannot be stored in the storage units? What are your rules for storage units? Probably “do not put living things in the storage unit” and “do not put things that can decompose and or smell in the storage unit” but what other rules would or do you have about storage units?

    • Matt Faircloth

      Hey Adam,
      You are correct, those are the rules for usage. It says things like no perishable food, no flammable items, don’t put your kids down here when they misbehave (just kidding), etc… It also says that the tenant is responsible for keeping the unit locked and secure and that the ownership is not responsible for theft or damage to the tenant’s possessions.

  12. Lawrence Maiolo

    I agree that the self storage units are a great idea. You can never have enough storage. Having a camera system can be perceived as both a positive and negative. Some prospective tenants may value their privacy or they might wonder about a neighborhood where you need security cameras. Plus, here in Massachusetts, the worst state in the country for landlords, I am not even sure you can legally do this. Lastly, it is nice to have a washer and dryer but, believe it or not, many tenants have their own. And, this will inevitably lead to fighting over the machines and who gets to use them and when. Thanks!!

  13. Todd Conway

    Watched the video, thanks for taking the time to record. While these are great, how about an amenity that doesn’t take up space and it costs nothing to implement. Airbnb as an Amenity. The amenity has a huge value add…many of the largest apartment building owners in the country are onboarding buildings with this amenity and finding incredible results. How it works is residents can list their units on Airbnb to make money but under the rules set by building owners. They are using software provided by Airbnb and Pillow which gives control and transparency for short-term rentals in their buildings. The benefits these building owners are using is really interesting. They increase occupancy by driving more leads, it sets them apart from the competition and they get a profit share on each reservation….residents are offsetting their rent with it which is why many Millennials are big into it.

    Buildings all over the country are using it – they are definitely quiet about it and they’re getting a lot of good results.

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