10 Aug Ways to Increase Cash Flow for Your Multi-Family Property
While you might not be able to control the market or the state of the economy, although both are steadily trending up right now, you can control your property’s cash flow and there are many ways you can create new revenue streams with your existing investments. Whether you are a new or seasoned investor, you can use these strategies to increase your NOI and optimize the earning potential from your multi-family properties.
Revenue Generating Property Management Strategies
One of the first ways property owners often think of to increase revenue is to increase the rent. And this might be a good strategy! However it is not as simple as deciding how much money you want to make and dividing by the number of units. Instead, you should start by researching the market rent prices and looking at similar (age, amenities, size, etc.) complexes and their rent and vacancies. (Pro tip: this is where a property management company comes in handy! It is our job to know the market trends and identify income generating opportunities for you.)
You want to ensure that the rent increases at minimum, cover your costs and, ideally, create a higher profit margin. But you also want to be wary of increasing rent too much or too quickly and creating a high vacancy for your property. To help avoid this, whenever possible, create some added value when increasing your rent prices.
One of the key strategies for marketing your property at your ideal price point is to determine a property theme and target customer. Are you marketing your property for low-income singles? Professional commuters? Young families? Once you know who you want to market the property to, you can refine your services and offerings for that group. Identifying and understanding your ideal client will help you generate income in two ways.
The first is that your property will become better known in the community you are marketing it to— meaning you will get increased interest and referrals. And if your property is well suited for your target market, you can also decrease turnover and vacancies.
The second way that having an ideal client helps generate income is by being able to offer value added services, where you offer amenities and/or services for an additional fee. And the more tailored your market, the easier it will be to sell! For example, if your complex is primarily multi-room apartments, marketed towards families, additional storage units, housekeeping services, or small gardens might be very good offerings. Or if your property is mostly studio apartments, with young singles, laundry services or live fitness classes could generate additional income.
(This tactic is also a cost saving technique, as one of the biggest mistakes investors make is to over-improve a property without focusing on the ability of the improvement to increase revenue. AKA if you upgrade your units with marble countertops but your ideal tenant isn’t willing to pay a higher rent or stay longer at the property for them, you are wasting your money!)
Finally, you may have the option of adding additional units to your existing property! Under new laws passed in 2020, you can add 2 new ADU units to any multi-family property AND up to 25% more units— all without additional parking, given your property is located within a half a mile of a local bus stop.
For example with a…
- Duplex: You can add up to 2 units + 25% (convert the garage to a unit), giving you a 5-unit complex
- 4-plex: You can add up to add 2 units + 25% (1 unit), becoming a 7-unit complex
- 20 unit: You are able to add up to add 2 units +25% (5 units), creating a 27-unit complex
- 100 unit: You can add up to add 2 units + 25% (25 units), now a 127-unit complex
As you can see, the larger the complex, the more exponential your growth opportunities.
Cost Saving Property Management Strategies
The first step in reducing costs is to look at your costs! Go back over the past three years of expense statements and see where the money is going. Often utilities are one of the largest expenses— especially if there have been cost increases that were not passed onto the renter. (AKA the silent profit killer!)
If utilities are currently included in rent, consider making some upgrades to the units, such as installing low-flow shower heads and energy effect light bulbs. You can also switch to Renters Utility Billing Service (RUBS.) This is where you, as the landlord, pay the utilities upfront and bill the tenant their portion. Billing amounts may be derived from sub-metering and/or by allocation. This is a way you can insure you break even or make money. It has been found that water usage is cut by up to 80% when the tenants pay for their usage.
Do keep in mind that some municipalities have laws regarding the methodology permitted for RUBS and could impact the total amount of your rent increases.
Also be sure to take a look at your maintenance costs and see if some preventative maintenance and regular inspections could help you keep costs down. Oftentimes small changes upfront can help you avoid much larger repair bills down the road.
Finally, you might even want to consider refinancing for a lower rate. Even a reduction of 1/2 of a percentage point can make a big impact on your bottom line. However, this is not always the best option for everyone. It will depend on your goals and finances. To see if it is an option for you, calculate the break even point— determine the costs of the refinance and divide that by the monthly savings and see how long it will take to recoup your costs.
In summary, increasing your rental property cash flow will not only help you sleep better at night but in many cases, these strategies also increase the value of the property itself! Giving you a future of good sleep. And should you ever have questions or want a professional on your side, the Reynolds Realty Advisors team would be honored to help you make your property as profitable as possible. Contact us for a free property assessment today.