Adding value to commercial real estate starts with increasing the Net Operating Income (NOI) of the property. Commercial Multifamily properties are valued by NOI divided by the cap rate.
Example: NOI of a property is $100,000 and the cap rate is 5%.
NOI/Cap Rate = Property Value
Or
$100,000/5% = $2,000,000
If you increase the rents and other income the property produces, then the property will increase in value. Likewise, if you reduce the expenses of the property, it will also increase the value of the property. Say you increase the NOI to $150,000:
$150,000/5% = $3,000,000
Now you have increased the value of the property by $1,000,000. Adding value to a Multifamily property is a win-win-win for the owners, investors, and tenants. Here are 10 ways to add value to your Multifamily property.
1. Curb Appeal
The first thing any prospective tenant or buyer sees is the exterior of your property. It would make sense then to have an attractive exterior to attract prospective renters. This is known as curb appeal. Boosting the curb appeal of a property can allow for an operator of multifamily apartments to raise the rents over a dumpy property. This could include a new paint scheme, landscaping, outdoor amenities, roof, or striping the parking lot. When you boost the curb appeal you also boost pride of ownership which will keep your property occupancy up as well.
2. Technology Package
Technology packages are becoming more popular in newer properties. If you can bundle services for your property to save money and then charge the tenants, you can increase the income off the spread. Tenants also like smart technologies in newer class buildings such as keyless entry and smart thermostats. Be careful with older properties though as it might not be worth the effort if the tenant base does not want it.
3. Interior Upgrades
Granite countertops and stainless-steel appliances have been popular for some time now. A lot of tenants really gravitate towards a newer feel in the kitchen area. You would not be able to charge a rent premium with old white appliances and linoleum countertops. Updating the kitchens is a common business plan for value-add investors. Updating the floors is another interior upgrade that can allow you to bump the rent. You will want to research your competition in the area and see what strategy will be worth implementing. You do not want to over upgrade the interior if you cannot achieve an increase in rent.
4. Update Utility Systems
Updating the utility systems at your property could be a big undertaking. It could increase the value of your property though. Older properties sometimes have chiller systems. Updating to individual HVAC’s could cut down on maintenance costs and keep tenants happier.
5. Reduce Utility Costs
Updating utility systems can be a big undertaking and not all properties need it. However, every property can benefit from reducing utility costs. This reduces expenses and increases property value. Some ways to reduce utility costs are to have individually metered units or bill back systems. RUBS is a Ratio Utility Billing System that allocates expenses to each tenant on a master-metered property. If you cannot bill back to the tenants or individually meter, then try to reduce consumption. Installing low-flow toilets or showers can save a considerable amount of money. Also monitoring for any leaks on the property will save money.
6. Signage and Branding
Many business plans include updating the property name and branding. Online reviews are important when tenants have more information than ever at their fingertips. Sometimes the old property management let some maintenance calls slide. Tenants usually go online to complain and leave bad reviews. If a property has too many bad reviews it might be time to update the brand. Signage can also help your Multifamily property. Having an updated sign that people can see easily from nearby traffic will naturally draw attention.
7. Increase Security
A well-lit property at night can make a big difference to prospective tenants. Proper lighting and security make someone feel safer living at the property. If a tenant feels safe being there, then they are likely to rent and stay. Having fencing, gate access codes, and security cameras all help with safety. Some properties even have in the budget to provide some security guards as well.
8. Property Management
Property management can make all the difference for Multifamily owners. A good 3rd party property manager will make life easy. If you have a well-trained staff that treats the tenants well, they are more likely to rent and stay. If the property manager can get the right tenants in and fill your building up, that increases the NOI.
9. Covered & Reserved Parking
Charging for covered parking or reserved parking is another way to increase the property’s income. Some properties already have covered parking, but some may benefit from adding it. Be sure to do a cost benefit analysis of how much it would cost to add versus how much you can charge. A simpler upgrade would be to just add signs for reserve parking. That way you can charge extra for the reserve spot.
10. Storage Units
Americans own a lot of stuff. They need a place to keep their stuff. If the apartment they are moving into does not have enough room for their stuff, they will need to get a storage unit. Instead of going to the nearest storage facility, it would be convenient to have that storage on site. Charging additional rent for storage is a good revenue generating idea. Also having an option to rent out a garage might be appealing to some tenants. Crunch the numbers and see if adding storage or a garage to your property makes sense.
Conclusion
There are 10 ways to add value to your Multifamily property. Be sure to come up with a good business plan based on your market and your competition. If you can execute the right strategy, increase income, and decrease expenses, it will be a win-win for everyone.
