The scenario is that you are in an income producing apartment building. Before you make an offer on this building, you should ask yourself, “Is there anything about this apartment complex that could be changed that will add value to it?” Let’s examine the variable components of the potential apartment building, income and expenses.
Returned
Your initial analysis should consist of researching other apartment buildings in the area that interests you. You can start by calling similar apartment buildings and asking about the rates for the units they have available. You need to know what your competition is commanding for the amenities they provide.
There are competent brokers available who should be able to provide information such as average rent per square foot and occupancy rates. You can then compare this data with similar data from the apartment building you are considering. You can then determine if the current owner has kept up with the market and can justify the rent increase without offering more improvements. There may also be an opportunity to convert excess storage space into a profitable living area. This would increase rental income and add value to the property.
You should find out if the building’s rental plan is “all bills paid” in a master metered environment or if tenants are responsible for their own electric bills. Converting a building and passing costs on to tenants can have positive revenue stream results. * The action will require a compensatory decrease in unit rents. * Tenants will be more conservative and think more about conserving energy if they know they are now responsible for their own energy use.
Another way to generate additional income is to provide retail services such as laundry, pay phones, and soft drinks to the apartment complex. Depending on the number of units, you can hire a laundry service that provides washers and dryers. The service will pay you for the right to offer its services on your property. You can negotiate with cable and satellite television services for the right to provide television services to your tenants. Cell phones are big business and phone companies regularly seek to lease a site to put their communication equipment on the roofs of buildings.
Spent
There are quite a few ways to minimize the operating expenses of an apartment building.
* The cost of building repairs and maintenance will vary based on the age of the apartment building.
* Management fees and salary costs can be reduced, especially if you are going to self-manage the property and take on many of the administration and maintenance tasks.
* It’s a good idea to pass utility costs on to the end user. Undermetered apartments can reduce electricity costs. You can reduce the cost of your water bill simply by fixing any leaks in your faucets and toilets and by replacing the flush mechanism in your toilets with one with a water-saving feature. You can also install water saving devices in showers and bathrooms.
* Look for an insurance agent who specializes in providing business services. You’ll find that costs vary widely between agents, so shop around for the best deal.
* You can hire a tax advisor to challenge the assessed tax valuation of a potential building based on the taxes paid by similar buildings in the area and possibly reduce the amount.
Searching for the right property can be difficult, but nothing worthwhile comes easy. Fortunately, by examining the variables, there are many ways to add value in an apartment building. By considering these variables, you should be able to determine the general condition of the property and the potential monetary returns on your investment.
