How do syndicators increase the net operating cash flow (NOI) – and with it the value of the asset?
In one of the previous articles, we showed how a seemingly negligible change of $25 per month per unit, produces a change of $ 500,000 in the value of the property. That is, saving $25 in expenses or adding that amount to the rent, significantly increases the value of the investment.
It is clear to us that less spending and more revenue is wonderful. But … how do you do that?
Well, what multifamily operators can do, is for example:
1. Raise rent
Sometimes, the previous owner did not want arguments and quarrels, and did not bother to raise the rent. Maybe he befriended the residents in person and was not comfortable with increasing their rent? Or maybe he was worried that if he raised the rent, some of the residents would leave and he did not have the energy to mess with finding new residents, who knows?
There are occasional transactions in which we identify an opportunity for a significant increase in rent, without further investment in the property.
2. Improve the property
A more common case is the one where we need to improve and invest in renovating the property. Modernize the interior of units, replace different infrastructure, repaint the buildings, re-pave the common parking lot, add various amenities (such as a barbecue area and/or a children’s playground), etc.
Then, of course, one can easily justify an increase in rent.
3. Provide additional services
What services can be provided?
i. Laundry services
ii. Cable TV: Incorporate in rent, cable TV services with extra profit for the syndicator.
iii. Covered parking at extra charge. It is possible to charge more money for such parking.
iv. Personal storage space – for storing personal belongings at an additional cost.
v. Pet fee – Any resident who wants to bring a dog or cat with our approval, is required to pay an additional rent.
vi. Vending machines – small added income, but additional income with little maintenance.
vii. Applications – Payment of application fees for checking the candidacy and suitability of a resident (credit and background check). It helps not only in income, but also deters “negative elements”.
4. Fines for delays
If there are residents who are late in paying the rent, then why not profit from it?
5. Streamlining
One of the things that Valore’ excels at, is cost savings and fat cuts. We have a methodology that we keep to ourselves, which allows us to carefully examine where costs can be reduced or eliminated.
The bottom line is that if you raise the income and lower the expenses, even in amounts of $50, it is equivalent to an improvement of $1 million in the value of the property (regardless of the improvement of the property due to the rise of the real estate market).
Of course, Valore’s investors have already seen quite a few cases of an increase of over $150 in rent per unit, which embodies a jump of over $3 million in the value of the property. Why do you think they invest over and over again?
In short, a dollar here, a dollar there, and very quickly we are talking about a million dollars and more in addition to the value of the property.
