One thing I like most about apartment investing is that it gives any investor the ability to have a solid cash flow via multiplied profits. Additionally, I want to find a way to increase those returns and ultimately, increase the overall value of the commercial property. How can I do that? Using the concept of forced appreciation, investors can make low- to no- cost changes and receive huge returns. Here are a few key ideas to maximize the value of your commercial real estate investment.
Raising the Rents
Many apartments aren’t being rented at market value. In fact, what you’ll find is that many apartment complexes (especially those managed by the owners themselves) are rented for 10% – 20% below market value to attract and keep tenants long term. This is a great strategy and one that is easily executed however, keep in mind that the leases must expire before you can raise rents. So during the due dilligence period having the lease expirations on there. For apartment complexes, this period can be anywhere from monthly to annually.
Decreasing Operating Expenses
Look for opportunities to decrease the operating expenses. By that, I don’t mean that you should be “cheap” and cut costs on maintenance and repairs that need to be done to keep your apartment complex up to date. I also don’t mean that you should take on property manage responsibilities yourself. What I mean is that there are improvements that should be made such as installing energy efficient windows adn lighting, and digital thermostats that save you money on your utility bills. You can also find cheaper alternatives for marketing your property, you can shop for lower insurance coverage. Decrease your operating expenses, but don’t be cheap about it, be smart about it.
Improving Tenancy Rates
While there is no one single trick to improve tenancy rates, every investor still has to find ways to tackle this challenge. First, take a look at the tenant base of your apartment building. This will give you a good idea of who is attracted to renting in your apartment building. This rental information will then help you strategize your advertising and marketing efforts to attract qualified tenants that are looking for the living experience youe apartment complex offers. I would also consider going beyond traditional print advertising methods and include social media marketing.
Changing the Tenant Base
Some apartment buildings have tenants who aren’t the best for your complex. These tenants often include those who make late payments, no payments, have been evictated multiple times and those who are involved in criminal activities. These kinds of tenants not only affect your NOI, they also won’t help you attract tenants who are the exact opposite. Start to get rid of these kinds of tenants and focus on doing what it takes to attract your target tenant profile. This may mean that you’ll have to invest in repairs and upgrades, but in the long run, it’ll pay off big time.
Upgrading the Facility
Contrary to popular belief, upgrading your apartment complex does not always include having major renivation work done. While there is often, cost involved, the financial impact can be minimal compared to the returns you’ll receive. Some low-cost upgrades could be replacing property signage, upgrading the landscaping, and repaving the parking lot.
Adding the Extras
There are other opportunities that will not only add convenience for your tenants, but it will improve your NOI. These amenities include things like vending machines for items like videos, soft drinks, and laundry products. You might also consider adding larger scale opportunities such as laundry facilities, parking, storage facilities. These added amenities will make your apartment building more attractive to potential renters and help retain current renters longer.
Forced appreciation is a powerful strategy any investor can use to gain multiplied returns on their apartment complex investment. Among their options, investors can do simple things such as raise revenues, decrease operating expenses, upgrade the building, and add convenience items for sale to your tenents. These changes are relatively easy to make and often have low or no cost. Like any real estate investment, each commercial property is unique and I recommend that you research your options thoroughly to determine which changes suit your property the best.
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Herb Strather
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