With your apartment acquisition behind you, it’s time to celebrate: one of the biggest stress points in the multifamily landlord business is now behind you. Now that you have an apartment property in your portfolio, it’s up to you to decide how to manage your investment. Would you like to sit back as a buy-and-hold investor collecting mailbox money? Or would you rather embark on the process of adding value to your new asset, to boost those rent checks or potentially sell in a few years? If the latter, it’ll be up to you to decide what improvements and service additions to use to boost asset value.
One caveat: for the most part, jumping into improvements ad hoc is a great way to waste money. Before you start with anything on this list, make sure that you have a clear goal in mind (like shooting for a specific rent boost or targeting a likely sale price). While this is as much an art as a science, it’ll ensure you focus your dollars and hours into the most actionable areas.
With that out of the way, let’s be clear: mathematically, asset value comes down to cap rates and NOI. Cap rates are determined by market factors, so your focus must be on NOI. If you have vacancy under control, your levers will be increasing revenue and decreasing expenses. Let’s take that line by line and see what strategies you can actually impact yourself.
Raising rent is the surest way to boost the value of your property. If your property’s previous owners neglected to raise rents themselves, you may be able to raise rents to market-comparable levels without any improvement work. Just keep in mind that renters may not be enthusiastic about their rents reaching market levels without a commensurate boost in amenities, perks, and service.
If you don’t have much room to raise rents without improvements, take a note from the National Multifamily Housing Council, which provides a yearly survey of renter preferences around the country. According to their research with property solutions provider Grace Hill, 92 percent of renters wanted washers and dryers in-unit, and would pay almost $55 for the amenity. 91 percent wanted AC, an option they said was also worth almost $55. Soundproof walls, high-speed internet, and walk-in closets were also high on the list, each with around ~90 percent of renters saying they would pay between $40 and $50 for the feature.
92 percent of renters wanted washers and dryers in-unit, and would pay almost $55 for the amenity.
In addition to the classic forced appreciation drivers of bathroom and kitchen finishes and luxury vinyl plank flooring throughout, consider targeting these amenities to drive the biggest rent boosts.
You may also be able to boost revenue by adding other income streams alongside rent. Buyers may raise an eyebrow if this number is far out of line with the market, but the four typical areas of parking income, vending income, pet rent, and washer & dryer income can be helpful in padding your revenue figure. If you are offering in-unit laundry machines, think about how you can boost parking income, to start. Here’s an idea: renters often respond well to, and will frequently pay more for assigned or covered parking spaces. Pet rent is also useful to consider optimizing. Perhaps fencing in a dog run, adding a dog washing station, and advertising as pet-friendly would help you add $50 to $100 of pet rent per unit per month.
The second area to focus on is cutting expenses. According to 2019 data from the National Apartment Association, the biggest expense categories for garden-style multifamily communities are taxes, personnel and salaries, and repairs and maintenance. While this data is for larger complexes (50-plus units), it still indicates important areas to focus cost-cutting efforts in. For many operators, the gateway to property technology innovation is leak detection, which is typically inexpensive to deploy. The right leak detection system, whether an actual water sensor positioned near potential leak points or a more simple flow monitoring device, could help cut down on the maintenance category there.
If your improvement program is larger, energy efficiency improvements, like low-flow plumbing fixtures, dual pane windows, and ENERGY STAR-certified appliances can be a great way to save money. If you charge renters a flat rate for utilities, this could be a direct cost-saving measure for you as the owner, and if renters are responsible for their own utilities, lower energy and water bills could help retain renters over the long term. Of course, decreasing wasted energy in hallways and entryways is a direct money saving opportunity, as well.
By boosting your revenue and reducing expenses, you will be able to realize significant boosts to the profitability of your apartment complex. Not only will this impact your monthly cash flow, it’ll also increase the value of your building when you go to sell, whether that is shortly after stabilization or 10 years down the road.