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5 Tips on How to Optimize the Value of an Income Property
For many real estate investors, managing a multi-unit building is a lot like running a business. The goal: find a way to increase revenues while reducing expenses so that their investment grows. Here are five tips for optimizing the value of a plex, including advice on rental units, unused space, tenant services, as well as energy and supplier costs.
1. Renovate the rental units
When prospective tenants
select an apartment, they are also choosing their future living environment.
With this in mind, improve the physical condition of your income property since
the unit’s appearance is key when it comes to attracting good candidates.
Improvements can be of
an aesthetic nature, such as a fresh coat of paint, new floor coverings or even
refaced kitchen cabinets. You can also choose to undertake more extensive
renovations. For instance, you could remove walls to create an open floor plan
or completely renovate a bathroom. However, these changes should be done with
the goal of attracting prospective tenants who are willing to pay more for a
quality living space. The renovations should also reduce the cost of urgent
repairs. In short, you can kill two birds with one stone!
Nevertheless, it is
recommended that you calculate the potential return on your investment before
determining the scope of the work. For example, how much can you realistically
increase the rent after renovations? According to Yvan Cournoyer, real estate
expert, to be profitable, the amount invested in renovations should ideally be
recovered in less than 36 months.[1]
One slight note of
caution: Section “G” of the lease. According to this clause, the landlord must
provide the new tenant with a notice indicating the lowest rent paid for an
apartment in the preceding twelve months. In the event of non-disclosure, tenants may assert
their rights with the Tribunal
administratif du logement. In other words,
think twice before drastically raising the rent.
2. Repurpose unused space
Some income properties have rental potential that is not exploited to its fair value. However, you can change this situation by repurposing unused spaces. Here are some possibilities:
- convert the basement into an apartment
- divide an apartment into two smaller rental units
- add additional storage spaces
- add an extension to the
building if the lot is large enough
As this work will most likely be costly, first check with your municipality’s urban planning department to see if it is allowed. Also, consult a financial advisor for help assessing the return on your investment.
3. Offer more services to tenants
Offering different
services to your tenants is a good way to set you apart from the competition,
while at the same time, bringing in more income. For instance, you could set up
a coin-operated laundry room in the building, or install a washer and dryer in
each apartment as part of negotiations for a rent increase. You could also
offer additional parking spaces or storage. In addition, the presence of
wireless Internet or a wall-mounted air conditioner will undoubtedly appeal to
many renters.
4. Reduce energy costs
Simple changes will help you reduce your electricity or heating bill, while improving the building's energy efficiency. To reduce your expenses, consider:[2]
- installing led bulbs in common areas
- using programmable timers for night lighting
- opting for programmable electronic thermostats
- caulking all windows
- replacing doors and windows
- improving the building’s insulation
- upgrading the central heating system
- converting your primary
energy source
While, unfortunately, it’s not possible to renegotiate your electricity, natural gas or fuel oil rates, there do exist loans and subsidies available to multi-unit building owners who wish to reduce their energy consumption.[3]
5. Negotiate with your service providers
In addition to
increasing income, optimizing expenses is a good way to make a real estate
investment profitable. Home insurance premiums, snow removal, landscaping,
maintenance services are all areas where you can reduce management costs.
According to Yvan
Cournoyer, a few hundred dollars in net income can quickly turn into added
value for your property. “As an example, an increase of $1,000 per year in net
income will increase the value of your building by approximately $20,000,
depending on the region in which it is located,”[4] he wrote in La Presse.
Rent prices – like housing prices – have risen significantly in recent years. For many owners, the current real estate market environment has allowed them to create value. Do you need a hand in identifying plexes with good investment potential? Team up with a real estate broker to help guide you in your search.
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