27 Ways to Increase Your Apartment Income
Savvy real estate investors are constantly looking for ways to increase their cash flow and the value of their multifamily properties. Are you? If not, you could end up making less money over time as expenses continue to climb and vacancies increase. Improving cash flow and creating value is achieved by increasing net operating income (NOI), which can be done either of two ways – by generating more revenues or reducing expenses.
What is NOI and why is it important?
Net Operating Income is total revenue (rents & other income) minus total operating expenses (property taxes, insurance, management, maintenance, etc.) It does not include payments on financing, owner distributions, or non-cash tax benefits such as depreciation & amortization. Simply put, NOI is how much gross profit a property makes after paying its bills.
NOI is important because it is one of the key components in the valuation of commercial real estate, and it is one thing the owner or manager can control. The greater the NOI, the greater the value of the real estate. If you are looking to increase your cash flow, or especially if you are preparing to sell your property, taking steps to boost your NOI can have huge payoffs in the end.
The value of commercial real estate equals the annual NOI divided by the market cap rate.  So in a 6% cap rate market, a $50/month increase in NOI equals $10,000 in value. Apply that to multiple units, and the dollars can add up quickly.
First, take a look at your existing revenue streams. Are you getting the most out of them?
- Bring rents to market – Is your property consistently 100% occupied? Do you get a dozen calls in the first hour when you advertise a vacancy? If so, your rents may be too low. Conduct a rent survey or ask your broker for rent comps to see how your rents compare to your competitors.
- Reassess fees & deposits – When was the last time you compared your deposit & fee schedule to other properties? Do you know the actual costs associated with related items? Don’t get caught covering expenses that should be passed through to tenants.
- Add amenities for which renters will pay extra – Don’t underestimate that value that tenants place on time-saving appliances and creature comforts. For example, many prospective renters won’t even consider renting an apartment without a dishwasher and a washer & dryer in the unit, and they fully expect to pay for them. If space allows, the investment is well worth the additional potential rent. At the very least, nearly every apartment has space to accommodate an air conditioning unit. Even simply upgrading older appliances can have a positive effect on the attractiveness of a property.
- Laundry – Some properties are still charging the same for laundry that I was paying back in college in the ‘90s. Be sure your laundry prices are enough to cover your cost of the equipment, maintenance, and water usage. Other properties don’t have enough machines to accommodate the number of residents in the building. If you don’t want to deal with managing your laundry equipment, collections, and deposits, consider outsourcing the service to a third-party.
Next, look at creating new sources of income.
CREATE NEW REVENUE
- Utility reimbursement – Also known as RUBS (Ratio Utility Billing System), the pass-through of water & sewer charges to tenants is the most common new revenue stream for most apartment properties. This is called a ‘net lease’ in other commercial properties, and is now becoming the norm in multifamily. Plus, it incentivizes residents to conserve resources and participate in cost-saving measures.
- Pet rent – Pets are tenants, just like their owners. They create ongoing wear & tear on a property, and charging an ongoing pet rent is a much more logical method of covering that cost than simply charging a one-time deposit. People love their pets, and with so many properties not allowing any pets at all, most renters are willing to pay the additional rent.
- Storage rent – How many of your tenants are paying for storage off-site? You might be surprised. If space allows, consider adding storage units on-site. Once in place, they require very little management.
- Parking rent – Apartment development continues to trend toward higher density, and one side effect is an overall decrease in the average number of parking spaces per unit.
- Bike rack rental – If you own property in a bike-friendly city, it’s quite possible you have tenants who commute by bike. In that case, secure, covered bike storage could be quite valuable to those not wanting to get muddy tire tracks on their (your) walls. Add in a bike-wash and maintenance area, and you may have tenants for life.
- Furnished rentals – The market for furnished apartments may not be huge, but it will never go away. Consider charging a premium for furnished units.
- Appliance rental (vacuums, carpet cleaners, etc.) – You might be surprised how many residents take advantage of this amenity. The benefit for you, of course, is that your tenants are paying to help maintain your property.
- Clubhouse rental – Many properties with clubhouses offer them to residents for no charge. But quite often, tenants are willing to pay for their use.
- Cell tower/antennae lease – If you’re lucky enough to have a property in the right location, a cell tower lease can produce great passive income. See celltowerinfo.com for more info.
- Billboard/sign lease – Great for urban properties or high-traffic areas, these are another low-maintenance source of passive income, and they are often managed by third-parties.
- Tanning bed rental – Would your residents drive to the nearest tanning salon if one were already on-site? Probably not, and the revenue per square foot might surprise you.
- Install vending machines – Today’s vending machine technology is pretty impressive. With new features such as bank cards and automatic reordering, it’s only getting better. Save your residents a trip to the store, and they will pay a premium for convenience items.
- Concierge services – Another hot new trend, primarily in luxury apartments, is a dedicated concierge to cater to residents needs outside of basic living accommodations.
- Reduce water/sewer usage – Installation of low-flow toilets, shower heads, and sink aerators can reduce water consumption by more than 30%.
- Simplify your landscaping – Install native plants that require less water, or remove plants altogether. Also, analyze your irrigation, timing, and usage. If your sprinklers turn on when it’s raining, it’s time to invest in a sensor.
- Faster turnovers – How long do your units sit empty before they are ready for the next tenant? Putting an efficient system in place for turning units quickly can cut your vacancy in half. Set a protocol for exit walk-throughs with vacating tenants, schedule vendors in advance and keep them accountable, and allow new residents to move in early with pro-rated rent.
- Install a recycling center – A designated place for recycling can reduce garbage pickups by 50%, and it reinforces the mind-set that residents can contribute to keeping the property clean and green.
- Common area lighting and electricity – LED lighting has finally reached the point of affordability. LEDs consume a fraction of the power of traditional light bulbs, and they are built to last for decades. Automate them with sensors or timers, and watch your electric bill drop. Also, consider installing solar panels to offset your electricity costs.
- Have your property taxes reassessed (if they are too high) – Contact a local real estate or tax attorney to find out if your property is a candidate for reassessment.
- Have your insurance re-quoted – Have you taken steps to improve your property in other ways, such as installing a security system? You may have insurance discounts available to you.
- Cable/internet/telecom agreements – Virtually everyone today requires internet access, and most residents pay for a cable or satellite bundle. Contact your local providers and find out if they will sell you a wholesale package that you can offer to your residents as an amenity. If the cost you pass-through to your tenants is less than what they would pay individually, you could make a profit and it’s still a win-win.
Keep in mind, that prospective renters still place the most weight on a base-rent to base-rent comparison, so be sure your marketing makes it easy to understand what features & amenities are included in the rent. In higher-end luxury buildings, tenants are less price-sensitive and prefer amenities over discounts.
Trevor Calton is a former director of asset management for a portfolio of over 6000 multifamily units, and he has underwritten over $3 billion in commercial real estate assets. He is also a Professor of Real Estate Finance at Portland State University. Follow him on Twitter @trevorcalton.
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