Easy Operational Value Add Plays in Multifamily Real Estate Investing

1.) Fines

A deal I just underwrote had over $15,000 in fines which caused me to write this blog post. I thought it was comical because all you would have to do for this value add play would be to get in compliance with the city and eliminate the $15,000 expense.

$15,000 / 6 Cap Rate = $250,000 in Added Value

2.) Security Patrol

If you're buying a property that truly needs nightly security patrol, it could be a sign you're buying in a location you shouldn't be buying in. That being said, if you think the security patrol is overkill, you can usually save thousands a month. Most times I see security patrol around $3,000 per month. Some alternatives could be better lighting, emergency buttons in common areas, cameras, etc. Say the alternative would be $1,000 a month and you save $2,000 per month.

$2,000 Per Month x 12 Months = $24,000 Increased NOI.

$24,000 / 6 Cap Rate = $400,000 in Added Value

3.) Eliminating other income sources that aren't creating a positive profit spread

When underwriting deals, I see deals with other income sources such as billing back utilities, valet trash service, credit builder services, cable / internet service, renters insurance, LeaseLock monthly security deposit payment, etc.

These items will have an income line item and a corresponding expense item.

What blows my mind is that you'll often see the expenses of these items exceeding the income. Sometimes this is due to occupancy issues, but other times it's not. It's almost as if the owner operator never looked at the financials.

All you'd have to do is eliminate the other income sources that don't create a profit spread.

Sometimes you can add $30,000 or even much more to the NOI by doing eliminating unproductive other income sources.

$30,000 / 6 Cap Rate = $500,000 in Added Value

4.) Adding a dog park and charging pet fees

I read a study once where medication prescriptions were something ridiculous like 10 times more likely to be used to completion if it was for a pet vs for yourself. People often take better care of their pets than themselves!

Dog parks are relatively cheap to install. If you already have the land space, just add a fence and a few quality features. Once you establish the apartment community as pet friendly, you'll attract more of that demographic and can charge them more pet rent.

You can look at it a few ways. The percentage of pet owners who pay pet rent will increase. Or you charge a higher pet rent or initial nonrefundable pet fee. Or better yet, you implement pet fees that don't exist.

$30,000 spent on a dog park.

$50 in monthly pet rent x 100 tenants x 12 months = $60,000 Increased NOI

$60,000 / 6 Cap Rate = $1,000,000 in Added Value

5.) Raising Underpriced Rents

I like this one because it's super simple. Ideally look for properties that have high physical occupancy close to 100%. Comparable properties that have higher rent help too. All you do is do nothing after you buy it and raise rents.

$100 rent increase x 150 units x 12 months = $180,000 Increased NOI

$180,000 / 6 Cap Rate = $3,000,000 Added Value