Increasing Your Profits On Your Apartment Buildings
Property management, like managing any other investment, is the key to success in residential renting. When you own one or more apartment buildings, your choices boil down to hiring a management company, or doing it yourself. As a new investor, or if you have a small number of properties (or just a single one) it's probably best to do it yourself, and limit yourself to properties within a reasonable driving distance. This lets you focus on learning the job, and learning what actually needs to be done so you can evaluate property managers when your business grows.
Profits are income minus expenses. There are only two ways to really increase your profits raise income or reduce expenses. We are assuming that you can keep your vacancy rate at about 3-5%, 7% tops. Higher than that means you need to sharpen your marketing skills to attract new tenants. Lower than 3% and your rents might be too low for your market.
When looking at your rents, check out the advertising for adjacent apartment complexes. Ideally, you want to be in the top 10% of rents within your neighborhood, as this will likely keep you in the 3-5% occupancy range. Likewise, to keep your occupancy rates high, take the time to make sure your model apartment is kept up. It's surprising how many companies forget this simple step when marketing their apartments.
Here's another hint work out a deal with your local furniture rental vendor to display some of their old, but not shabby, stock in your display units, and rotate the furniture out every 6 to 9 months. If you're near a college campus, the time to swap furniture sets out is mid July.
One positive side effect of higher rents is that they increase the value of your property, by increasing the cash flow that's accrued as part of the total property valuation. If you're going to raise rent, the time to do it is on an empty unit. If you have to raise rents on a currently occupied unit, the time to do it is on their lease anniversary; a small increase of $20 to $40 (no more than 10% of the total rent) tends to be absorbed by existing renters, who weigh the rent increase against the hassle of moving to a new unit.
It's usually better to increase rents than trim costs, as cost trimming may result in tenant flight. If you're looking to reduce costs, here are some things to consider.
Whenever getting any sort of work done worth more than the rent of a single unit, get competing bids. It may consume more of your time, but the savings is often worth it. When you're installing a new system on the property (gates, alarms, pools), spend the extra cash now to reduce maintenance expenses in the long term. This, again, increases the value of your property. This also applies to getting insurance always get competing quotes, preferably 60 to 90 days before your policy is due for renewal.
Never skimp on repairs. Every time a repair is delayed, it's only going to cost you more, as the damage is pervasive. Obviously missed repairs or repairs that are botched will make your property less appealing when viewed by new customers, and may make existing customers leave. Always be proactive on repairs, as that's the single largest factor degrading the value of your property. Also, make sure that any tenant pays for repairs that are distinctly their fault and their hazard.
Other things that can save you money buy motion sensor lighting, or solar powered motion sensor lighting for your exterior areas to cut down on utility bills. For hallways and other places where you pay for electricity, get fluorescent bulbs. For areas where the lights are on all the time, like a parking garage, it may be worth it to invest in LED lights, and install a timer switch wherever possible.
Install water saving showerheads and faucets in your units; you're probably paying the water bill. Any place where you're paying for the heat, make sure you control the thermostat. It's always better to let tenants pay for their own heat if possible.
Don't be afraid to provide incentives, like giving tenants a break on rent if they're police officers and willing to provide some security, or giving tenants a break on rent to do some generalized picking up or lawn mowingand be sure to talk to other apartment complex owners in your area; they have a wealth of experience in this area you can tap into.
Once you've learned how to manage your own properties, you will have the experience to evaluate property management companies for your growing portfolio. You will also have the expertise to make sure they are managing your properties for maximum profits.
Profits are income minus expenses. There are only two ways to really increase your profits raise income or reduce expenses. We are assuming that you can keep your vacancy rate at about 3-5%, 7% tops. Higher than that means you need to sharpen your marketing skills to attract new tenants. Lower than 3% and your rents might be too low for your market.
When looking at your rents, check out the advertising for adjacent apartment complexes. Ideally, you want to be in the top 10% of rents within your neighborhood, as this will likely keep you in the 3-5% occupancy range. Likewise, to keep your occupancy rates high, take the time to make sure your model apartment is kept up. It's surprising how many companies forget this simple step when marketing their apartments.
Here's another hint work out a deal with your local furniture rental vendor to display some of their old, but not shabby, stock in your display units, and rotate the furniture out every 6 to 9 months. If you're near a college campus, the time to swap furniture sets out is mid July.
One positive side effect of higher rents is that they increase the value of your property, by increasing the cash flow that's accrued as part of the total property valuation. If you're going to raise rent, the time to do it is on an empty unit. If you have to raise rents on a currently occupied unit, the time to do it is on their lease anniversary; a small increase of $20 to $40 (no more than 10% of the total rent) tends to be absorbed by existing renters, who weigh the rent increase against the hassle of moving to a new unit.
It's usually better to increase rents than trim costs, as cost trimming may result in tenant flight. If you're looking to reduce costs, here are some things to consider.
Whenever getting any sort of work done worth more than the rent of a single unit, get competing bids. It may consume more of your time, but the savings is often worth it. When you're installing a new system on the property (gates, alarms, pools), spend the extra cash now to reduce maintenance expenses in the long term. This, again, increases the value of your property. This also applies to getting insurance always get competing quotes, preferably 60 to 90 days before your policy is due for renewal.
Never skimp on repairs. Every time a repair is delayed, it's only going to cost you more, as the damage is pervasive. Obviously missed repairs or repairs that are botched will make your property less appealing when viewed by new customers, and may make existing customers leave. Always be proactive on repairs, as that's the single largest factor degrading the value of your property. Also, make sure that any tenant pays for repairs that are distinctly their fault and their hazard.
Other things that can save you money buy motion sensor lighting, or solar powered motion sensor lighting for your exterior areas to cut down on utility bills. For hallways and other places where you pay for electricity, get fluorescent bulbs. For areas where the lights are on all the time, like a parking garage, it may be worth it to invest in LED lights, and install a timer switch wherever possible.
Install water saving showerheads and faucets in your units; you're probably paying the water bill. Any place where you're paying for the heat, make sure you control the thermostat. It's always better to let tenants pay for their own heat if possible.
Don't be afraid to provide incentives, like giving tenants a break on rent if they're police officers and willing to provide some security, or giving tenants a break on rent to do some generalized picking up or lawn mowingand be sure to talk to other apartment complex owners in your area; they have a wealth of experience in this area you can tap into.
Once you've learned how to manage your own properties, you will have the experience to evaluate property management companies for your growing portfolio. You will also have the expertise to make sure they are managing your properties for maximum profits.
