Making a real estate investment–such as purchasing a multifamily residential property, as an individual or as a sponsor–is the first step in a journey. This journey ends with the eventual sale of the property. In between closing on the purchase and closing on the eventual sale, the property is an asset that must be managed effectively, to achieve the investor’s goals.
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There are three main asset management goals for every multifamily property investment: increase revenue, reduce operating expenses, and increase the property’s value for eventual resale. If you’re not already employing the following strategies, you probably should be.
1 Develop a Capital Improvement Plan
Do some market research to see what other rental property owners in the area are offering and how much their units rent for. Use that information to identify upgrades that can justify increasing the rents you are charging. There’s no sense in spending money on improvements if there is no return on that investment.
The rental housing market can be quite competitive, especially in areas where there is a high enough vacancy rate for renters to have multiple options. People looking for rental housing will most likely be shopping around to get the most bang for their buck, so to speak. Your property won’t be their top choice if you are charging more than your competitors for comparable units. Upgrades to kitchens and bathrooms have the most potential for increasing your rental income.
2 Improve Tenant Retention
Some tenant turnover is unavoidable. Changes in life circumstances, such as relocation related to employment, a change in marital status, loss of income, or becoming a homeowner, can create vacancies, perhaps with little advance notice. And vacancies not only cut your rental income; they also result in turnover expenses related to readying vacant apartments for new tenants and acquiring new tenants.
But you can prevent some vacancies, primarily by making tenants want to stay because they are content and comfortable in an apartment they regard as “home,” not merely a temporary residence. Think of things you can do to create a sense of community and belonging. Consider arranging special events that get tenants out of their units and interacting with their neighbors. Give them a reason to make use of common areas where they cross paths with each other. Send birthday cards or appreciation cards when they renew their lease. Anything you can do to make your renters feel at home can help improve tenant retention.
3 Take a Proactive Approach to Maintenance
Being proactive about maintenance serves all three asset management goals. It prevents tenant complaints and increases tenant satisfaction, which impacts tenant retention and rental income. It also allows early detection and correction of problems before they get worse and requires costly repairs, which cuts down on operating expenses. And it helps preserve the property’s value.
4 Establish Beneficial Partnerships with Vendors and Suppliers
Leveraging your buying power as a large and valued customer by choosing your vendors and suppliers carefully and negotiating discounts also can reduce operating costs. Buying cleaning supplies, landscaping materials, and other high-use items in bulk should earn you a discount. Offering preferred vendor status and giving your preferred vendors all of your business can be a powerful incentive for them to value the relationship and aim to keep you as a satisfied customer.
5 Implement Additional Fees for “Extras”
Many renters are willing to pay additional fees or somewhat higher rent for services and features that add value to their experience as tenants. Common extras that can bring in additional income include:
- cable and internet service
- premium parking spaces (e.g., closest to an entrance, or protected from the elements, or marked as “reserved”)
- permission to keep a pet on the premises
- private storage in a secure area
- on-premises laundry facilities (coin-or card-operated)
- in-unit washer and dryer
- vending machines for snacks, laundry supplies, etc.
Viewed as single line items, the additional fees charged for extras such as these may not seem like much, but in the aggregate, over the course of a year, they can really make a difference.
These asset management strategies produce the best results to increase income, decreasing operating expenses, and adding value to a multifamily property when property owners and managers exercise their creativity. Just make sure the benefits gained justify the cost of implementing your great ideas. For more information like this, and access to investment opportunities, join our investor list.