MultiplyMyIncome
02-21-2008, 12:01 PM
There are ways to manage your property more efficiently to increase your profits but there are also specific ratios and profit centers to target in order to maximize when you sell.
The most common way is to increase rents by a small amount. If you have an apartment building, for example, with 100 units in it that is currently operating at a 10% cap rate with Net Operating Income (Gross rents less your expenses will give you your NOI - Net Operating Income) of $100,000, then you know your building is worth approximately $1,000,000 ($100,000 divided by 10%). It's important for you to know some ratios well enough and to be able to play with them so you know what even a $20 increase in rents will do to your value. For example, when you increase your rents by $20 / unit you just added $2000 in monthly income or $24,000 to your Net Operating Income (assuming no increase in expenses) to make it $124,000 yearly and the new value using the 10% cap rate is $1,240,000. That's almost a ¼ million dollars by making a $20 rent increase.
Aside from rents, when dealing with multi unit residential buildings, laundry machines are a very common way for owners to increase their income. Let's use specific numbers again. If you have a laundry machine that is producing $3000 in yearly income for you, you just (dividing by your 10% cap rate) increased your value by $30,000.
Other ways to increase your income:
• Extra Storage
• Parking or premium parking
• Pay phones
• Video Machines in laundry rooms
• Vending Machines in laundry rooms
• Wash and fold services in the laundry
• Cleaning services for your tenants' apartments
• Child sitting services for your tenants' children
Obviously the bigger the building the more money you will make as you add these revenue sources so keep in mind the size when considering these changes. A good rule of thumb would be approximately 10 units and up are enough to start adding services and other profit centers.
Aside from raising income, the other thing that improves the value using the cap rate formula is a decrease in expenses.
10 ways to decrease your expenses:
1. Use water saving toilets
2. Water saving devices on showers & sinks
3. Stick a brick or a gallon jug filled with water in the toilet tank to reduce how much water has to fill up with each flush.
4. Negotiate insurance contracts with the intent of lowering
5. Low wattage bulbs in all common areas and apartment areas that you're responsible for.
6. Electric timers or sensors for common area lighting.
7. Fully regulated thermostats when you're paying heat.
8. Reduce the water temperature slightly to acceptable levels still.
9. Create a monthly checklist for your maintenance person to check on potential water leaks and always repair immediately. Encourage your maintenance person to write down other items that he/she thinks of or that he/she has had to deal with. Your checklist will grow over time and cover almost everything.
10. Electric/automatic door closers where appropriate.
The most common way is to increase rents by a small amount. If you have an apartment building, for example, with 100 units in it that is currently operating at a 10% cap rate with Net Operating Income (Gross rents less your expenses will give you your NOI - Net Operating Income) of $100,000, then you know your building is worth approximately $1,000,000 ($100,000 divided by 10%). It's important for you to know some ratios well enough and to be able to play with them so you know what even a $20 increase in rents will do to your value. For example, when you increase your rents by $20 / unit you just added $2000 in monthly income or $24,000 to your Net Operating Income (assuming no increase in expenses) to make it $124,000 yearly and the new value using the 10% cap rate is $1,240,000. That's almost a ¼ million dollars by making a $20 rent increase.
Aside from rents, when dealing with multi unit residential buildings, laundry machines are a very common way for owners to increase their income. Let's use specific numbers again. If you have a laundry machine that is producing $3000 in yearly income for you, you just (dividing by your 10% cap rate) increased your value by $30,000.
Other ways to increase your income:
• Extra Storage
• Parking or premium parking
• Pay phones
• Video Machines in laundry rooms
• Vending Machines in laundry rooms
• Wash and fold services in the laundry
• Cleaning services for your tenants' apartments
• Child sitting services for your tenants' children
Obviously the bigger the building the more money you will make as you add these revenue sources so keep in mind the size when considering these changes. A good rule of thumb would be approximately 10 units and up are enough to start adding services and other profit centers.
Aside from raising income, the other thing that improves the value using the cap rate formula is a decrease in expenses.
10 ways to decrease your expenses:
1. Use water saving toilets
2. Water saving devices on showers & sinks
3. Stick a brick or a gallon jug filled with water in the toilet tank to reduce how much water has to fill up with each flush.
4. Negotiate insurance contracts with the intent of lowering
5. Low wattage bulbs in all common areas and apartment areas that you're responsible for.
6. Electric timers or sensors for common area lighting.
7. Fully regulated thermostats when you're paying heat.
8. Reduce the water temperature slightly to acceptable levels still.
9. Create a monthly checklist for your maintenance person to check on potential water leaks and always repair immediately. Encourage your maintenance person to write down other items that he/she thinks of or that he/she has had to deal with. Your checklist will grow over time and cover almost everything.
10. Electric/automatic door closers where appropriate.