Strategies to Increase the Value of Your Apartment
- Jul 21, 2010
Coming out of a tough recession has not been easy for multifamily real estate owners. While apartment buildings have performed better than some other asset classes, values have declined along with the overall market. The good news is that, as an owner, you don’t have to remain at the mercy of the market. In every market and in every phase there are companies that outperform their peers. According to our internal analyses, incremental differences multiplied over time and across all parts of your operation will enable you to outperform the market by a wide margin.
Value is driven primarily by NOI, or net operating income. Therefore, it would make sense to first identify those actions to improve your NOI. The two factors that predominantly impact NOI are income and expenses. Here are some suggestions to consider:
- Can you increase your income by charging a small fee for parking or even slightly more for premium parking spots that are covered or closer to your building entrance?
- If you have an unattractive laundry facility with old machines perhaps replacing or refurbishing the machines and cleaning up the laundry room will drive up usage and revenue.
- Can you get away with a small nuisance increase in rents of $15 – $25 per month?
In essence, a decrease in vacancy results in an increase in income. You save on downtime and on “make-ready” costs. Some initiatives to contemplate:
- Renew your leases early. Waiting for the lease to end or the tenant to call is not the most effective strategy. Instead, show up two months before the lease is set to expire and inquire if there is anything that needs repairing in the tenant’s apartment. Handle it immediately then shortly thereafter offer to paint or upgrade the kitchen or bathroom if they renew early at a higher rent. You’ll likely have to do this work anyway if they choose to move.
- Alternatively, assuming your tenant is in good standing, offer to return 25 percent of their security deposit if they renew early. Everyone needs cash right now so this could make a real difference for your tenant by freeing up these funds.
- Ultimately, people stay in their apartments when they feel they are part of a community. Host a holiday get-together, create a WiFi internet “café” in a community room, add a fitness center, build a dog run, etc.
Thinking outside the box will give your tenants a new perspective. Give them a reason to choose you instead of a competitor.
The next step is to reduce all of your operating expenses. Some examples of successful tactics include:
- A landlord who went to bid with his insurance and saved $200 per unit.
- An owner who asked every vendor to reduce their prices by 6.5 percent in exchange for not going out to bid. It worked in every instance because nobody wants to risk losing customers in the current state of our economy.
- Replacing common area lighting with motion detectors that keep lights on a low wattage so it’s never completely dark, and then increasing the wattage up to standard levels once motion is detected.
Another critical issue to focus on is property appearance. Curb appeal sells houses and it helps rent apartments, too. Upgrading your lighting, signage and landscaping will all make a significant impact and separate you from the competition.
There are probably 100 ideas that you could come up with to improve the operation of your property. Test a few creative ideas that would give you a leg up on the competition, and, if they work, introduce a few more over time and so on. Before you know it, your competitors will be wondering why life seems so easy for you.
(Dean Marchi oversees brokerage operations as first vice president for CB Richard Ellis’ Private Client Group and is based in the company’s Saddle Brook, N.J., office.)