The 3 Quickest Ways to Increase Your Cash Flow and Property Value
1. Create additional income sources
Just as there can be hidden expense pitfalls, there can be hidden treasure with your property as well. What does extra income do for your building? That’s right; it raises the value in addition to the cash flow! These hidden treasures are everywhere. Look at your building, the features, the lot, and the layout. What is an extra amenity you can charge for or an expense you can have the tenant help with? Here are some examples of creating additional income:
Charge for utility reimbursement. If you are paying the heat or hot water for a building, you really should charge a utility reimbursement fee. You may have heard the term “RUB”. That is exactly what this is. This is the quickest and most significant way to increase your net operating income is to implement a RUB. Not only does it immediately increase you cash flow, it also by default, will lower the utility cost. How? When tenants are having fork up the cost for high utilities they will think twice before taking an hour-long hot shower or leaving all their windows open when they go to the store in the middle of December. To calculate this, you can literally take the utility bills and divide them by square footage or by unit. They normally range from $45-$75 per month for each unit.
Even if the heat and hot water is already paid by the tenant you can still charge a RUB for water, sewer, and garbage. Ten years ago, this would have seemed taboo in the Pacific Northwest. Today it is common practice across the country and in our market as well. Although much less substantial than if you’re charging a RUB for heat or hot water, it still helps cover the cost of common areas and rising utility cots. This type of RUB you normally see in the $25-45 per month range.
Charge for garages or parking spaces. If you have off street parking, especially if it’s covered consider charging a nominal fee for parking. You will need to put sign up to make it clear the spots are reserved. If you have more units than parking spaces this can increase your monthly cash flow and is much more effective than first come first served. Just make sure you have tow sign up and a company that will come get it and charge the tenant when they park where they shouldn’t.
Offer storage units on site. You know all those large closets in the common area? Some don’t use them; some could use two. Again, a nominal fee like $15 per closet makes sense. Or how about that large garage or storage shed not being used? Where can you build storage space you can charge for?
Install coin-operated laundry machines and vending machines. This may depend on how big your building is but typically 6 units and larger are well worth it!
There are dozens more, but hopefully, you get the point. This is the area where investment property owners most often leave money on the table. So, as I said, can you think of additional income sources for your investment property?
2. Improve curb appeal and clean bright common areas
Improve curb appeal. If you overlook curb appeal, you’re missing the point of how to increase the value of your rental real estate. What if you pulled up to rent or buy a property, and your first impression was average at best? What if you pulled up, and your first impression was the owner cares about their property? You notice it’s clean, in good repair, and well run. Not only does curb appeal attract more tenants, but you can usually get more rent for buildings with good curb appeal.
Have clean, bright common areas. Whenever you’re looking to increase your rent roll on a property significantly, you need to start with the common areas. Why not start in the area that all the tenants and new prospective tenants use and see? In fact, when we buy a building that we are going to reposition from a C class building to a B class building, we always start, along with the curb appeal in step 1, with the common areas. This is because all new prospective tenants will see the common area areas. If these areas don’t look good, for example, if the building has a creepy, dirty, or dated laundry room, you may not be able to attract the type of high-quality tenant you want. Once you are done with the common areas, you can “go behind closed doors” to update apartments. Even if the building has a lot of work to complete, once you address the exterior and the common areas, the building looks complete to the community and prospective tenants. I often see landlords improve the interior of the units and save the exterior for last. This makes no sense; don’t do it. Prospective tenants will judge the building from its curb appeal and common areas before they make it into the unit for rent.
More rent means a higher net operating income, resulting in a higher property value. Also, any future buyers for your property would potentially pay more, or said another way accept a lower return on investment. This is because properties with good curb appeal and clean bright common areas attract higher quality tenants.
3. Reduce variable expenses
Variable expenses can be the most dangerous when they catch you off guard. I remember buying a three-building, twenty-two-unit portfolio; the expenses in my original analysis were very different than the actual numbers pulled at the end of the first summer. The major difference? My landscape costs. When I reviewed the invoices, I was not only paying to have the grass mowed, but the vendor was doing all sorts of unnecessary sprays and extra services. This expense is variable because it can be changed, minimized, or even eliminated. If you wanted to, you could do the mowing yourself, or maybe you have a zealous tenant who will do it for a minimal rent credit. This is just one of many examples. Others may be water features, online security systems, common area cleaners, repair and maintenance services, and the like. Do you need the level of variable expense you currently have? This is always a great question to ask. If you’re not getting a return on investment with the expense, do you need it? And certainly, if you are getting ready to sell, you want to minimize these expenses.
Those are my three quick ways to increase the cash flow and value of your rental real estate. Whether you’re just looking to “net” more per month or considering an exit from active ownership these three items should be looked at. Although experienced buyers, like Extant Investment Real Estate Company will buy “as is” and you don’t have to do anything, you can get a higher sell price if you do.
Would you like help increasing the cash flow and value of your property? We can help with that. Most people know us as a buyer of rental property that helps you reduce your tax obligation, but did you know we manage rental property as well? That’s right, if you would like a hand getting the most out of your rental properties with the least amount of effort than give us a call! We can customize a plan for your rentals using strategies like the ones above and many more. We are taking on new clients in 2022 if you don’t want to do it all on your own.
To freedom through cash flow,
Tyler Vinson
