As value investors, we are always looking for multifamily deals we can get into, improve and drive revenue to increase the net operating income. This is referred to as ‘forced appreciation’, when you, as the investor, are actively working on the property to improve cash flow and reduce expenses.
This is different from ‘natural appreciation’ where the market is driving the increased value of the property. Basically, you are selling the property for more than what was paid. You have no control over this type of appreciation and it is not always guaranteed.
Forcing appreciation in a big way, such as installing new low-flow toilets to drive down water expenses (if you are paying for water) or increasing rents is not always possible. Perhaps you don’t want to invest in the plumbing work or you are already close to market rents and can’t push them higher. Regardless, there are still ways you can improve NOI and force appreciation in other ways and reserve the cost intensive tactics for later.
Here are 5 affordable ways to force appreciation in your multifamily deal:
1) Install Coin Operated Washers & Dryers: If your multifamily deal has a basement or storage area that is not in use, install a coin operated washer and dryer. It is not only a huge benefit for the tenants as they won’t need to go to a laundromat, you will also benefit from the income on the machines. If you have a small multifamily apartment building, something less than 30 units, you can probably get away with installing your own units and having the management company pick up the coins on a regular basis. Reach out to a few of your local laundromats and ask them if they are willing to sell their used machines. Depending on where you are located, you can charge $2/cycle on each. If you have enough tenants, it can add up quickly.
2) Offer Doorside Trash Valet: Depending on the asset and the market, you can consider either having your cleaning people put this in place or bring in a company that does this on your behalf. Not only will it keep the hallways clean, tenants won’t need to walk their trash to the dumpster on those cold, late nights. Many outsourced companies will split the profit with the property owner, so the barrier to implement is low. Again, this will vary depending on where the property and where it is located.
3) Add Storage Units: Tenants are usually short on space and will often pay for additional space if you offer it. If you have a dry basement, you can put up walls and doors and rent the space to the tenants. If you have space outside, you can have a steel structure put together on the premises. There are professional companies that put up prefabricated storage units and they are not expensive. Tenants have been known to pay an extra $30 to $50 per month for each unit – and all that cash goes straight to the bottom line after you cover the build cost.
4) Install Energy Saving Systems: Aside from LED lighting and motion sensors, you can also install systems for your furnace or boiler that will only activate depending on the temperature outside. There is usually some cash to kick up for the install, but it will pay for itself in two months if you are providing heat for your tenants.
5) Install Security Cameras: While this is not an income-generating investment, it does increase the overall value of the property. The active cameras will keep an eye on your investment while giving the tenants some peace of mind. In some cases, they may even make the difference for the tenant to move into your building versus one that doesn’t have such a system.
Anyway, what are some low cost or affordable ways you are driving income or reducing expenses? Let me know in the comments. I’d love to hear from you.
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