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 of 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 it’s 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 to 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 a month with you, it makes sense to spend a few dollars a month to show them 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 save you hundreds of dollars in lost profits from an inflated water bill.
Fixing things 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 increases the quality of the tenants who rent from you.
From new paint to tub surrounds to 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 won’t 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 Customers 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 a nice building to attract quality tenants, there’s a point at which your expensive renovations no longer 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 not necessarily a high-end one. So consider, for example, simply refacing those cupboards instead of tearing out the cupboard framework altogether and replacing them.
Strategy #6: Clean Up Your Laundry Room
Laundry rooms are oft-neglected rooms in a multifamily building but investors who ignore their laundry rooms lose out. Spend a couple of hours and clean up your laundry room: Make sure the washers and dryers are clean and functioning properly, make sure the room is clean and bright, and give the walls a coat of white paint. Just a few hours of work will make your laundry rooms far more inviting and will increase the likelihood that people will go there to do their laundry (instead of to a laundromat).
This simple change will contribute to the positive feelings that your tenants will have about your property and that helps to keep them around. And here’s another great benefit: Banks will include your laundry room income as part of your Net Operating Income (NOI), which raises the value of your building. It’s a small fix with a significant payback.
Strategy #7: Be Proactive About Bed Bugs
Bed bugs are tiny little critters that can instantly turn your successful multifamily property into a costly frustration. If one tenant brings them in, they can quickly spread to other units and soon you could end up with a very serious (and costly) infestation – one that costs thousands to remove and even drives tenants away.
A simple solution is to proactively have a company come into your apartment once a month and apply chemicals to the baseboards as a preventive measure to keep bed bugs from spreading. Yes, tenants may still bring in bed bugs from time to time but this keeps them from growing worse. And the cost of this preventive spraying is considerably less than if you had to bring in a company to deal with a building-wide infestation!
Multifamily is an entirely different type of investing than single family investing. The challenges are different, as are the profit opportunities. Implement some or 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!