It’s simple math. Every $100 increase in net monthly rental income increases your property value by approximately $15,000 to $20,000 in our current market! A simple $25/month bump in rents on a 50-unit property will increase the monthly cash flow by $1,250 which (at a 6% to 7% cap rate) increases the market value by approximately $214,286 to $250,000. Even on a smaller 10-unit investment, the same $25/month bump in rents could increase the market value approximately $42,857 to $50,000.
If you’re considering selling your investment property, maximizing rental income is critical to obtaining the highest value. If you’re simply looking to increase your cash flow, there are things you can do to show tenants you care, making them open to small incremental rental rate increases. A few ideas might include updating paint and landscaping, providing wireless internet, adding security cameras, making the common areas more secure with walls or fencing, or possibly increasing lighting in parking areas for more security. These items show you care about improving your tenant’s home–items they should be willing to pay a bit more for in rent. If your units have the ability (space and plumbing) to add washers and dryers in the apartment, this can often generate a $50 to $100/month increase in rent.
Another means to increasing rents is to charge tenants for a portion of any owner-paid water/sewer/electric/gas bills (commonly called RUBS, Ration Utility Billing Systems). Almost every large apartment community already uses some form of RUBS. Smaller complexes are quickly catching on. You can use a RUBS billing service company or just add a certain fixed amount to the monthly bill. By passing along these expenses to tenants, you can significantly increase both cash flow and market value. Each tenant is charged a proportionate share of the monthly utilities after subtracting a 10-20% owner expense portion for the maintenance of common areas. Research also shows that tenants who are responsible for these expenses are more conservative in limiting use of utilities. There arelimits as to how much you can charge depending on state and local regulations. You can check with governing agencies or call us. We’re happy to help!
Again, what may cost you a minimum investment of time or money may greatly increase your cash flow and/or overall value. Our team of very experienced agents can also help evaluate your current property and provide a plan for increasing your income and equity. We do this all the time. Call us today for a personalized evaluation and value-add plan for your investment property.
Arvle Knight, CCIM