You might be wondering, "How can I increase the cash flow of a property?" or, "Why is increasing the cash flow of a property important?" Well, if you increase the cash flow of a property, you directly increase the value. By creating a better product, you will motivate tenants to want to rent the property and stay longer, saving you time and money. In the 18 years that I've invested in real estate and helped my clients buy and sell, I've developed 7 Pro Tips to increase the value of your investment property.
When you own a building, you tend to lose money every time a tenant moves out by incurring painting, flooring, and general maintenance costs. By having a good long-term tenant, we save money from those costs and from those that come with having a vacancy, therefore it is important that we provide good quality housing that motivates tenants to want to stay. Having a long-term tenant not only saves you time and money, but more importantly it makes it much easier to manage and own your investment property. Some of the questions I get are that it's going to cost time and money, so, "why should I do it?" Oftentimes, doing certain improvements far outweighs the small investments needed.
When I first got introduced to real estate, a very common theme amongst property owners is that they don't plan on living in their investment properties, so they don't make improvements. They think they should keep everything pretty basic to keep costs low, leaving the old cabinets, doing the simple Navajo paint, and as we jokingly refer to the carpet that we used to install as brokers, "Beige Carpet," because it was really poor quality. For years that was my mentality, to just keep everything simple, clean, but nothing flashy. Now, things have changed. Tenants expect much much more on their property; in fact, I've coined the term, "Top Shelf Apartments." Let's get away from the thought process of keeping things cheap and clean, and let's do things that are slight upgrades that make the difference to the tenant because at the end of the day the tenant will pay for a higher quality apartment unit.
Pro Tip 1 : Installing a Washer and Dryer Inside of Your Units
I recommend that everyone try to find a closet, part of a kitchen, or somewhere you can install interior laundry. Higher a plumber, run some water lines, and a sewer line connection and this will be worth so much to the tenants. They'll pay more, stay longer, and will appreciate having this laundry within the units. As a long-time owner, I've found similar stories about tenants preferring to lease a property that has interior laundry by interviewing several apartment owners. In fact, on average, a tenant will pay $250 more per month to avoid having to go to the laundromat.
Pro Tip 2 : Convert a Dining Room Into A Bedroom
A lot of the buildings in Long Beach are older, and we see a lot of one bedroom units with a formal dining room. Tenants simply won't pay anything extra for that formal dining room, so we found that if you convert that formal dining room into a bedroom you will definitely be able to rent that property for much more because you are creating value by taking a one bedroom and converting it to a two bedroom.
Pro Tip 3 : Increase Your Parking Capacity
In the city of long beach parking is scarce, and guess what, tenants will move out if they have to keep circling the neighborhood to look for parking. Let's find somewhere on your property where we can increase your parking capacity. Sometimes it takes clearing out some shrubs or part of the yard, but there's always a place where we could strategically place a parking slab. A parking slab that we recently put in on one of our own properties cost us $2,000 to put in and with the new increase in rent we were able to get an additional $200 a month for that parking. Within the first year, it had paid for itself. Sometimes we can add a tandem parking spot, and guess what, that creates value. Parking is super key in the city of long beach.
Pro Tip 4 : Provide Air Conditioning
We all know it has been getting hotter every year, and we are certainly in a heat wave in Long Beach right now, so providing air conditioning is very important to tenants. Air conditioning is something that a lot of units don't have, but as split systems have gotten much cheaper, that investment will easily pay for itself. If someone comes into your property and you're offering air conditioner while your competition is not, they're easily going to rent from you, and they are going to stay longer.
Pro tip 5 : Create An Enclosed Outdoor Patio
Looking at your building, try to find some outdoor area that you could enclose to provide for your tenants. For instance, we know that a lot of buildings in Long Beach have a common area space that can be chopped up, enclosed, and given to the tenants as private space. The tenant then feels like they have a small yard or patio area, and right now that's more important than ever. With COVID 19 and the mandatory work and learning from home, having a little private area to retreat to is a big plus to our tenant base.
Pro Tip 6 : Getting a Permit for An Unpermitted Structure
This type of permitting is new and came out this year. In a lot of buildings in Long Beach through the years, someone has created a rhombus room which later gets an additional bathroom and a kitchen, and suddenly it becomes a rentable unit, obviously without permits. For example, we sell a lot of buildings where we advertise them as a four-unit building with an unpermitted fifth unit. Now, state law has given you the owner the right to get that fifth unit or that extra unit properly permitted. This is one really good way to add value because instead of brokers marketing it as an unpermitted unit, they can now say that it was recently permitted and can be there by the city of Long Beach. It's then acknowledged as a rental unit and will help drive value when you decide to sell.
Pro Tip 7 : Be a Pet-Friendly Building
A lot of owners have the misconception that if you allow a dog in your unit, that dog is going to chew the carpet and make holes in the drywall. I certainly haven't experienced that, and frankly, if you have, just make sure you have an additional deposit. When you allow for a pet the tenant tends to stay longer because they know it's going to be hard to find another property that also allows their pets to be there, so it's good for you, for the tenants, and their pet. There you have it, my 7 Pro Tips.
We're inside of one of our units where we've done all seven pro tips that we've highlighted, starting with the air conditioner. The air conditioner was not in place before, now it is. This unit has been recently remodeled: we added recessed lighting, tile backsplash, and an antique stove. These are things most owners wouldn't want to do, but they make a big difference. This original unit also did not have washer/dryer hookups, and now it does which is a big bonus for a tenant who is looking for indoor laundry. Here is an enclosed patio that can now be marketed as office storage. It doesn't take a whole lot of money to be able to pull this off, in fact, something that we talked about in our prototypes was creating parking. In this case we created a tandem parking. There was an existing slab for one car, and we poured a second slab to make room for a second parking spot. Now we have two parking spaces that are tandem, and that is a bonus for this specific unit. When we talked about enclosing an area and giving them a private patio, even a small private space like this works. It doesn't need to be a whole lot, but these tips will make a tenant want to rent your property, pay a little more, and stay longer.
Hypothetical Implementation of 7 Tips
Let's just assume that you have an apartment building, whether it be a Triplex, Fourplex, or even eight units. You're able to make some changes and increase the income by $1,000 a month, so, for the year, you've increased it by $12,000. What does that do to your value? One might think you've increased the value of your building by $12,000 because that's what you've got in income, but that's a misconception and incorrect because in real estate we sell on multipliers. In the City of Long Beach, we sell at a 15x gross rent multiplier, which means that the $12,000 will be multiplied by 15 and we'll come up with an increase of value of $180,000. When we're telling you to make these simple improvements, it's because they have tremendous results on the increase of your real estate. If you'd like to have me and my team out for a free no-obligation consultation where I come out and try to find areas where we can increase value in your property, I would love to do so. Thanks again for watching, and I'll see you next time.