We are currently experiencing the highest inflationary period in the last 40 years and multi-family investment owners are facing declining cash flow. A common conversation I am having with multi-family owners across the Central Valley is – what can be done to maintain the investment value of my property?
Each property has a unique story and characteristics that are important to consider when assessing (and adding!) value to a multi-family property. Some require thousands of dollars in upgrades and amenities, while others are as simple as routine maintenance. Determining what strategies and solutions work best requires an understanding of the current market through accurate market data, an awareness of the marketing and sales process, and a firm grasp of all potential options and benefits available.
Let’s narrow down key initiatives every investor should consider that will maximize the value in the building.
1. Raise the Rent
One way to add immediate value to a property is to raise the rent. Keep track of market averages for similar unit types and what amenities are provided. Understanding market trends and comparable buildings informs investors about how much of an increase the market will bear. Rental increases are vital to maintaining positive cash flow and hedging against inflation. However, California has rent restrictions so this shouldn’t be the only tactic to increase property value.
2. Audit Operational Costs (Expenses)
Multi-Family investors are accounting for higher operational expenses due to inflation and its effect on rising costs of goods, labor, insurance, materials, and property taxes just to name a few. Many analysts have predicted that certain expenses will rise between 6%-21% over the next year. It is more important than ever to audit operational costs frequently to ensure future revenue remains positive. It is often possible to obtain a more competitive quote on property insurance by shopping around every couple of years. Buying material in bulk (carpet, tile, supplies,) can save thousands on Repair and Maintenance costs in addition to time and labor. Combing through expenses on a regular basis and checking market data will maintain prudent operational costs.
3. Improve Curb Appeal
The exterior appearance of the property can help attract tenants or drive them away. The good news is these exterior improvements often don’t have outsized costs. One approach many investors take is to focus on improving landscaping and green spaces. If a property has lawn space, upgrade it. Fencing, lighting, grilling space, and durable furniture can give tenants desirable green space. Some investors offer space for tenants to join in a community garden, which is a great way to provide a community-building activity, along with a sense of ownership on tenants to maintain. For properties with limited green space, consider potted planters for an outsized positive impact.
Many owners, whether they are holding their property long term or exploring the possibility of listing the property for sale in the near future, solicit guidance on improvements to their property that will help marketability and add value to their investment. It is important to seek help from a qualified multi-family investment advisor who can help guide an owner through improvement strategies, asset management, property acquisitions and dispositions, investment goals, or simply keep you abreast of market trends.
Dustin Ilic, CCIM is a Multi-Family Investment Advisor with the Visintainer Group in Fresno, CA. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $500 million in transactions across the United States. Dustin specializes in multi-family property acquisitions and dispositions for owners in the Central Valley and Central Coast markets. He can be reached at 559.890.0319 or [email protected].