As a multi-family investment sales broker, new and seasoned investors look to me for help in sourcing consistent “value-add” deal flow. Sourcing deals is not a challenge in today’s market. However, sourcing deals that prove to have “meat on the bone” may just be the difference in one competing investor’s creative operating strategy over another’s. For example, one investor might view a 150-unit community in a superior DFW sub-market with rents near the top of the market versus it’s comps, that experienced a mere 4% increase Gross Potential Revenue in the trailing twelve months, operating at a 98% occupancy, where the average sub-market year over year rent growth was 4.17%, as lacking in upside. Whereas, another investor whose vision bears strategies to creatively boost NOI (in areas I will further discuss) sees the same 150-unit investment as a prime value-add opportunity. Identifying and capturing your next value-add opportunity may hinge on just how creative you are on generating NOI boosting strategies. In this blog post, we will review some obvious and not so obvious strategies to creatively boost your asset’s bottom line.
In the example above, we focused on a recent off-market deal that was made available to a hand full of buyers that received major attention but with mixed interest. The strategies discussed next have all been achieved by successful operators of recent multi-family acquisitions in the trailing-12 months dating back to August 2018.
When thinking about boosting NOI three broad categories come to mind: 1) Increase Income 2) Reduce Expenses and 3) Increase Occupancy (retention or new lease), which technically falls under the Increase Income strategy as a sub-category but is worth discussing on its merit.
Raise your rents.
- Burn off your Loss to Lease by raising your rents on the classic units (non-renovated) to market rates. Don’t be afraid to test the market with your renovated units. If you’re consistently running above 96% occupancy your rents are likely too low and bumping them $25-$50 a quarter until the market pushes back is an effective strategy to increase your income.
Implement new revenue streams with Other Income strategies.
- Regardless if you operate your property as ABP or TBP, implement a flat “facility maintenance fee.” On the last three DFW deals I brokered, all three operators have implemented flat FMF’s and are receiving monthly dues ranging from $25/unit to $35/unit to $20/bed (that’s per tenant)! If your property does not have an onsite fitness center partner with a local gym and offer gym memberships as part of the lease agreement for an additional fee.
- If your property has W/D connections furnish the washers/dryers for a $20/mo. fee as well as offering an onsite laundry facility.
- Add phone/internet services that are controlled by the property but paid for by tenants.
- Take advantage of extra space and add storage units for the convenience of your tenants.
- Use excess parking spaces to add covered and reserved parking.
Invest in your property’s curb appeal.
- The fresh exterior paint, updated signage, and clean landscaping go a long way in making your property stand out. Do not let future tenants pass your property as they drive down the street to your competition because you lack curb appeal. And when they stop and enter your leasing office, new furniture, paint, and fixtures may be the appeal needed to capture your next lease.
Invest in renovating your units.
- Invest in modern improvements to the interior of your units and benefit from increased rent and occupancy. Modern improvements include replacing carpet with faux-wood flooring (looks nice and costs less to maintain), two-tone paint, resurfaced countertops. adding white shaker cabinets with brush nickel pulls, black appliances, built-in microwaves, ceiling fans, bath fixtures, and new lighting.
Invest in adding amenities.
- Today’s renter base looks for new amenities at properties when making living decisions. So, consider offering one or more the following additions: fitness center, business center, pet stations, bark park, playground, sports courts, valet trash, gym memberships as part of the leases, fenced patios with gates for pet access, the possibilities are endless!
Contest annual tax increases
- Texas is a non-disclosure state and savvy owners contest their tax bill every year that there is an increase. As always, consult your tax attorney/professional for advice (generally they will represent you on a contingency basis and be paid on a percentage of your savings), the Texas tax code calls for Equal and Uniform tax assessments and this code saves property owners money on tax expenses, yearly.
Invest in implementing “Green” saving programs.
- Not only can you save money on your loan if you’re financing with agency debt by receiving “green” discounts, but you can save money on your utility expenses too. Operators can take advantage of energy-efficient smart thermostats, like the Nivasa energy savings program, and water reduction services, like SaveWater Co’s installation of low-flow toilets and showerheads and placement of aerators on all the faucets.
Choose the right management company.
- Choosing the right management company significantly increases your bottom line. So, work with a management company that can successfully fulfill ALL OF THE ABOVE!
About the author:
Byron Griffith is a Director with Greystone | Investment Sales Group in Dallas, TX. If you want to learn more about our Off-Market Opportunities, Multi-Family Listings, Land Sale Listings, Property Valuations, Debt Platform, or meet for coffee to exchange value-add ideas, contact our office:
Greystone Investment Sales Group
6320 LBJ Freeway, Suite 228, Dallas, TX, 75240