When a buyer is investigating an apartment or multifamily project purchase, the due diligence piece is quite important. As a part of due diligence, the buyer will examine rents from a number of perspectives. It isn’t just about making sure that the deposits equal what is being collected from the tenants.

There can be a great deal of cash flow improvement to be uncovered if one or more of these rent factors are out of line.

Are Rents at Market Values?

This is a multi-faceted question. First, a thorough market study should be conducted, with a careful look at what type of tenants are in place versus the available pool of tenants in the market.

In other words, is this project full of employees of the local canning plant, while there’s a new tech center that could provide tenants at higher wage scales able to pay higher rents? And, are the rents being charged in line with competitors for the tenants currently in place?

Sometimes a seller is selling because they are tired of the business, and one result could be that they found it easier to just leave rents alone, rather than raising them to market and having to replace some tenants.

Another thing to look for are units that show one amount in the lease, but another on the checks. This happens with negotiated decreases in rent for any reason, as well as “sweetheart” deals for relatives or vendors/tenants trading services for rent. It’s important to identify units that are not generating the revenue they should in order to make an informed decision on tenant retention.

Can Rents be Increased at Nominal Expense?

There’s a market analysis piece here, as well as a marketing and advertising study. Is management marketing for the “highest and best use” of their units? In other words, could the simple and inexpensive addition of free tenant Wifi Internet access allow an increase in rents far above the cost?

This could be especially true if there is a new high tech employer in the area, and even better if they allow tele-commuting, or working from home, as many do.

But, even just looking at the mundane things in our tenants’ lives, like appliances and common area amenities, are there improvements that will result in increased rents and better cash flow?

What if a fitness center can be constructed and financed at a monthly payment one-tenth of the rent increases we could charge for its use?

When you start looking outside the box of life style improvements that
your competitors don’t offer, 2 things happen.

1. You can offer amenities that your competitors don’t, resulting in a lower vacancy rate (assuming what you’re offering is in demand)…

2. By having a complex with amenities that are in demand, you can raise the rents, thus increasing the value of the property.

Start compiling a list of all the amenities offered by apartment complexes. Do your due diligence to determine which ones might make sense financially to add to your property.

Start getting excited when you find financially responsible ways to make more money with commercial real estate!

I hope these creative ideas help you to fill apartments, raise rents, and increase property values!

I’ll share more with you soon…

Fondly,

Karen Hanover, CCIM Candidate
Apartment Education Institute, President

P.S. If you still haven’t signed up to attend one of my few
remaining Live Academy Events of this year, there
are only a handful of seats available.

CLICK HERE to reserve your spot now!

Tagged with: advertising , apartment & multifamily , cash flow , due diligence , Karen Hanover , market , marketing , rents