WHILE A LOT OF FOCUS IN THE INVESTING WORLD IS ON SINGLE FAMILY RESIDENCES, THERE’S A WHOLE UNIVERSE OF MULTIFAMILY INVESTING THAT DOESN’T GET THE ATTENTION IT DESERVES. An entirely different type of investing altogether, multifamily comes with its own unique set challenges and profit-making opportunities.
There are number of ways in which you can grow your multifamily profits as you grow your multifamily portfolio. Here are just a sampling of strategies and best practices derived from experienced investors.
Strategy #1: Work with Your Property Management Company
One of the most attractive parts of investing is the ability to delegate the responsibilities to a professional while you enjoy the freedom that passive cash flow brings. However, many investors take it too far by giving full control of their properties to their property management company. They abdicate responsibility instead of delegate it.
Specifically, your property management company should be looking after the care and upkeep of the building and they should be collecting rent but they should not be setting rental rates. Here’s the reason: Property Management companies may set slightly lower rates than you’d set because its easier on them if the building is full, but this cuts into your potential profit since slightly higher rents might reduce occupancy but can create higher income overall
Strategy #2 : Build Tenant Loyalty
Many investors think that once a tenant moves into their unit, the owner’s responsibility is over. But here’s the reality : In many markets, tenants have a lot of choice and if there’s nothing keeping them in your building then they’ll start looking elsewhere. They’ll also start measuring the difference in rent between your building and others.
That’s why it's important to build tenant loyalty. Do what you can keep your tenants happy. Here are three suggestions:
- Keep the building clean and in good working order.
- Send them little gifts of appreciations - such as gift baskets and Tim Hortons gift cards. If they’re spending $1000 as month with you, it makes sense to spend a few dollars a month to show then your appreciation. (Hint: No one else is doing this and it will shock your tenants.)
- Call your tenants every two to three months just to check in and say hello. (See strategy #3 for why this is a GREAT idea)
Think of this loyalty as an investment with a guaranteed return of tenants who stick around longer and who are less likely to move out at midnight.
Strategy #3: Fix Things Right Away
Checking in with tenants is a great idea because you’ll often discover potential repairs that you may not have known about otherwise. A quick “touch-base” phone call may reveal a leaky faucet that a tenant simply didn’t think was important enough to call you about… but which could have save you hundreds of dollars in lost profits from an inflated water bill.
Fixing it right away saves money in a different way, too: Tenants are happier in well-kept buildings and will be more likely to stay (reducing lost income from lower occupancy) and well kept units are easier to rent(also improving occupancy)
As well, repairs of even small and seemingly innocent things - such as bathroom fans - can help keep moisture from turning into mold or rot.
Strategy #4: Invest Some Money On Improvements
Many multifamily investors set aside money for repairs and maintenance - that’s a good investing policy. But you should also set aside some money to improve your buildings. This increases value, which improves occupancy and also increase the quality of the tenants who rent from you.
From new paint to surrounding beautiful gardens and more, don’t think of this as a massive annual expenditure but set aside somewhere between 4% and 7% of gross rent each year for improvements. You wont make a massive change in one or two years but after a few years, you’ll have a great looking investment with high quality tenants, and you’ll easily be able to ask for higher rent.
Strategy #5: Renovate Only For What Your Customer Need
New investors sometimes enter multifamily investing with delusions of grandeur and a desire to own the nicest apartment building on the block. While it’s important to have nice building to attract quality tenants, there’s a point at which your expensive renovations no loner make financial sense.
Before you go into that empty unit and tear everything out, think about what your tenants – aka your customers – really want. Do they want new cabinets with beautiful stone backboards and the latest, high-end amenities? Probably not. They’re looking for a nice place to live but they’re not looking for a dwelling that is their point of pride (in the same way a homeowner might think about their high-end house). They want functional amenities and an attractive kitchen but necessarily a high-end one. So consider for example, simply refacing those cupboards instead of tearing out the cupboard framework altogether and replacing them.
Multifamily is an entirely different type of investing. The challenges are different, as are the profit opportunities. Implement some of implement all of the above suggestions and watch as you end up with happier tenants, nicer investments that are worth more, higher rents and lower occupancy. That’s a profit increase any investor can be excited about!
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