Optimize the Amenities Your Value Add Multifamily Properties Offer
Value add commercial properties, particularly multifamily units, can provide an unparalleled investment opportunity. Because these properties often need extensive improvements to realize their true value, they often have a lower cost of entry than comparable assets. Finding the right asset and executing on the business plan can lead to lucrative returns.
Finding the right property at the right time is important, however, when renovating and marketing a multifamily investment, it’s crucial to determine which improvements will add the greatest value. Putting your funds into front-page features like community pools may not be enough to overcome a lack of lighting or security cameras, especially if your property is in a less-than-ideal neighborhood. To optimize your investment, you’ll need to learn more about what today’s renters seek and value and balance the cost of these amenities with the rental rates your market can support.
Amenity Trends in Multifamily Units
Property management software provider Entrara.com recently conducted a broad survey of apartment renters to determine which amenities they valued most—as well as which, if any, would make a rent increase more palatable.
Surprisingly, this survey revealed that today’s renters are far more interested in technology add-ons than the amenities traditionally associated with high-end apartment communities—like swimming pools, parking garages, and community centers. More than 75 percent of survey respondents indicated that they’d be willing to shoulder a rent increase in exchange for high-speed internet and cable television, the ability to pay rent online, and “smart” home features like wireless security cameras, keyless entry, and app-enabled thermostats.
Certain interior amenities can set your property apart from the competition without adding much cost. Replacing outlets with USB duplex receptacles can bring an older apartment into the modern age, while utilizing inexpensive wood or tile laminate flooring to refresh worn-out carpet or tile serves as an instant upgrade.
With the rise of e-commerce, many renters have bemoaned their apartment complexes’ lack of consistent package delivery options. Secure storage lockers can reduce the risk of theft and prevent renters from having to choose between an inconvenient trip to the post office and the risk that their package won’t be on the stoop when they arrive home.
From an investor perspective, improving tenants’ sense of security can significantly reduce turnover, further improving cash flow in value add properties. If a unit is vandalized or burglarized, an armed security camera can provide officers with a clear picture of the person(s) responsible. And upgrading from “analog” locks to keyless entry and adding security cameras may reduce liability insurance rates for investors and rental insurance rates for residents.
Determine the “Sweet Spot” For Amenities Offered
Although Entrara’s survey revealed that most renters are willing to pay higher rent in exchange for certain amenities, it’s important to evaluate factors like crime rates, mean and median wages, and the features offered by comparable properties in the area when determining which of these amenities your multifamily unit will support.
For example, if your property is located in an area where few residents have smartphones, focusing your improvement dollars on app-enabled security cameras may not do much to draw in prospective renters. On the other hand, installing high-speed internet connections in each unit and bundling the cost of these services with rental rates can be a major attraction to those who might otherwise not be able to afford internet access.
Balancing Amenity Costs with Rental Increases
Investors are often challenged by the balancing act that comes from recovering the cost of improvements through rent increases. Nearly all renters are willing to pay higher rates in exchange for features that enhance their quality of life, but not all features will appeal to all renters, and some may bristle at the thought of paying more for products and services they don’t want.
Small, regular rent increases are almost always more palatable than a sudden hike, particularly when this hike comes on the heels of a visible renovation or change in ownership. Further, raising rental rates gradually will allow you to make minor tweaks to the prices you charge without risking a spike in vacancy rates.
