8 Ways to Increase the Value of Your First Multifamily Investment Property

Written on September 1, 2016 by , updated on December 2, 2016

increase-value-part2Welcome back to the three-part series: A Beginner’s Guide to Multifamily Investing. If you haven’t already, read Part 1: How to Buy a Multifamily Rental Property.

Why would you want to increase the value of your small multifamily investment property after you emptied your pockets just to purchase it?

First and foremost, you may be able to increase the rent and/or your property value, either of which will further increase your total borrowing power. With value-add investment, you have the option to implement any of the following strategies at a leisurely pace to improve your property incrementally over time. The associated expense is simply the cost of opportunity.

1. Make Repairs and Improvements

If you have an outdated property that needs cosmetic work or modernization, if you revive the property, it is likely that you could dramatically increase the rent. The rental income from outdated units will land somewhere between modern rates and those from its original era. But an upgraded unit can fetch market rates.

My own strategy is predicated largely on acquiring historic rental properties that need to be improved and then bringing them to the top tier of my local market rents.

2. Increase the Rentable Square Footage

If there are common areas in your property, it is very difficult to capture their true value in rent. Whether you give the key to the hallway closet to a tenant or open that space directly into one of the units, increasing the square footage of personal area will also allow you to increase your rentable square footage and total rental income.

3. Subdivide or Combine Units

This strategy can add value if a property is not the right size or configuration to suit the demographic makeup of its market.

If you have a 3,000 sq ft unit, you might consider splitting it into two 1,500 sq ft units. They will be easier to rent because the total monthly cost will be significantly lower to each tenant and will subsequently reach a larger segment of the population. This will decrease vacancy and may also increase your Gross Scheduled Income.

4. Decrease Expenses

Accounting, advertising, insurance, lawn maintenance, legal fees, licenses, property management, repairs, and maintenance all add up. Anything that you can do to decrease any of these expenses without sacrificing the quality of the property is all money in your pocket.

5. Pass Expenses to the Tenants

Because gas, water, and electricity are all consumable resources that can be used variably by tenants, it is appropriate to have them pay as much of their utility expense as the market will bear in your area.

If the infrastructure of your property is not already metered separately, consider doing so. There is an entire industry built around sub-metering behind your master meter to help allocate expenses to your tenants fairly.

6. Decrease Property Taxes

Property taxes fuel the public improvements that make your market a desirable place to live; you want to pay your taxes to keep this cycle flowing, but you don’t want to pay more than your share. If you are able to convince your local appraisal district to lower its book value of your property on the tax rolls, it will noticeably decrease your overall property tax expense.

Evaluate the properties surrounding your house that are similar to craft an argument that illustrates to the authorities how they have over-assessed your property in relation to your neighbors’ properties.

7. Tap Additional Sources of Income

There are a number of strategies to develop secondary sources of income from your rental property. Premium paid parking is an excellent example, as one of your tenants will certainly want to reserve the lone carport in your fourplex for their most treasured automobile. Invariably, shared resources in small multifamily properties are underused or abused if they are not valued fairly.

Related: View all our Increasing Income Ideas

8. Raise Rent

If your rental rates are significantly below the rest of the market, you may be able to simply increase the rent at the next available opportunity. Even a 3% annual inflationary increase will add up over the years.

In the upcoming and final article of A Beginner’s Guide to Multifamily Investing, we will explore how you can multiply your rental property income over time by recycling equity and leverage.

What Are Your Strategies?

What strategies have you used to increase the value of your investment property? Let’s grow this list together. Please share your thoughts in the comments below.

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7 CommentsLeave a Comment

  • Tyhe

    Is it legal to say no pets for your tenant, but you have a pet in your apartment below. You meaning the landlord. NYC.

  • Jeremiah

    Hi I’m using your PULR system. I’m at the update stage and wanted to know if you have any suggestions for a loan to update my property. Maybe a small loan of about 5 thousand. Is there any small loan options that could save me money in the long run?

    • Kim

      I found a credit card that had a no interest for 15 months introductory rate and used that to update my rental. As long as you make the minimum payment, and can pay it off in 15 months, it’s by far the easiest and fastest way to get quick cash.

  • Balustrade Components

    these are very good tips. Thank you for sharing!

  • jack

    Sometimes there’s more to the equation, than meets the eye.

    Case-in-point: Utilities.
    We (as landlords) pay the utilities (and respectively increase the monthly rent to cover it.)
    This includes water, cable TV and Internet. (We don’t pay for their electricity — yet.)
    We also pay for all of the lawncare and such (also baked into the rent.)

    Why do we pay these?
    Because it allows us to report higher monthly “gross income” on our properties (which is later used to qualify for additional mortgages/properties.)
    Example: $1,000/mo rent; gets increased by $100 for water, $100 for internet/cable, $200 for lawncare and such.) So, our gross income has increased from $1,000 per month, to $1,400 per month = 40% increase in our gross income!

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