The traditional plan of adding value in a multifamily property typically stems around renovation and better management that leads to the opportunity for rent increases. A property that is dilapidated or perhaps has a tenant profile that prefers to stay in the same place for long time periods may be under market rent and provide the new owners opportunities for increased cash flow and value. However, in addition to increased rent, there are other revenue opportunities that can boost NOI (Net Operating Income) with minimal investment or effort. Today’s article will review a few of these concepts.
Charging for Utilities
On many multifamily properties, there is a single meter for water, gas or even electricity. Initially, many properties pay for these utilities without charging the tenants for them. Implementing RUBS (Ratio Utility Billing System) or other means of charge back allows the owner to recuperate some of this expense and therefore increase NOI. Other utilities such as property wide internet can also be billed to tenants for a flat fee with the same result.
Charging for Pets
Some property managers choose not to strictly track pets due to the additional time and hassle it creates. However, knowing which tenants have pets is important from a property maintenance standpoint and from a risk reduction standpoint since it can affect the amount of deposit collected. Additionally, implementing a pet rent can offset the cost of this additional work and add to the NOI. For example, in a 100-unit property where 50% of the tenants have pets, a $15/month pet rent would add $150,000 of property value at a 6% Cap rate.
Adding Washer and Dryer Connections
Many budget apartments in the past did not have washer and dryer connections as an offering in their units. Adding them, however, typically allows for $50/month rent increase which across a 100-unit property at a 6% CAP rate would add $1,000,000 of value to the property! It also makes the lives of the tenants much more convenient and encourages them to stay.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please check out our free ebook "Achieving Financial Freedom Through Multifamily Investing."