Blog

Home » Blog » Boosting Returns: A Comprehensive Guide of Value-add Strategies in Multifamily Investing

Boosting Returns: A Comprehensive Guide of Value-add Strategies in Multifamily Investing

Let’s talk about passive versus active investments.

Passive investments are straightforward: you invest your money, you wait a while, and you (hopefully) make a return. Examples of these investments are a high-yield savings account or an index fund. Passive investments require very little time and energy, leaving more bandwidth for things like having a full-time job, hanging with friends and family, enjoying hobbies, and managing your active investments. 

Active investments, as their name implies, require a little more work. With an active investment, investors are employing different tactics and strategies to, ideally, get even bigger and better returns than sitting and waiting for that account to grow. One example of this? Buying and selling stocks based on short-term performance. Investors can enjoy much better returns when that work is executed effectively, but it requires a lot more attention.

So which is best – passive or active investing? Many investors do a bit of both, relying on the relative certainty of a passive investment and the potential for large returns on an active investment. And that’s just one more reason to love multifamily investments: you can do both! Investors can anticipate steady cash flow in the form of rents, and boost their returns by employing value-add strategies. Value-add strategies focus on enhancing the property to increase its value, generate higher rental income, and improve the overall return on investment. If you’re ready to take a more active approach, we’ve compiled a comprehensive guide of value-add strategies to employ in multifamily investments.

 

1. Renovations and Upgrades

One of the most effective strategies to increase tenancies, rents, and overall property value is a makeover. Upgrading kitchens, bathrooms, flooring, and lighting can significantly increase a property’s appeal and rental rates. Interiors may be the main area of focus in multifamily properties but it’s important not to neglect the exteriors. Enhance curb appeal with new paint, landscaping, signage, and sprucing up common areas like lobbies and hallways. Also take advantage of cost-saving measures, like installing energy-efficient windows, appliances, and lighting.

 

2. Amenity Enhancements

What amenities are tenants looking for? Areas like gyms, pools, outdoor BBQ areas, and playgrounds can be very attractive to potential tenants, especially if other properties in the area are offering those amenities. Smart home technology, like keyless entry, security systems, and energy meters are also popular additions to consider to not only attract and keep tenants but also increase the value of the property.

 

3. Operational Improvements

Switching to more efficient property management companies can enhance tenant satisfaction and retention, reducing vacancy rates and turnover costs. Implementing dynamic pricing strategies for rents based on market conditions and demand can improve revenue management. Conducting a thorough review of operating expenses can also identify cost-saving opportunities, such as renegotiating service contracts or installing water-saving devices to lower utility bills.

 

4. Marketing and Leasing Strategies

When tenants are looking for a new home, where’s the first place they usually look? The internet. If they’re not sold on how a property looks online, they’re unlikely to view it in person, let alone actually rent it out. Utilizing professional photographers, virtual tours, and targeted online advertising is a simple way to help attract more tenants. To retain tenants, consider employing leasing strategies like loyalty programs and renewal incentives.

 

5. Addressing Deferred Maintenance

Deferred maintenance happens: sometimes it’s due to a lack of funds, lack of parts, lack of experts, or infrastructure issues making the work difficult. Even so, addressing deferred maintenance issues promptly can prevent further deterioration and improve living conditions for tenants. Establishing a preventative maintenance program can also extend the life of building parts, reduce unexpected repair costs, and maintain the value of the property.

 

6. Repositioning

Sometimes, properties themselves are fine but the perception around the property needs a new lease on life. In this instance, it’s a good idea to consider repositioning and rebranding, which might include a new name, logo, or marketing materials. This could also help the property’s image and potentially appeal to different markets.

 

7. Lease Structuring

Offering flexible lease terms can attract a wider range of tenants. Additionally, implementing structured rent increases over time, in line with market trends and property improvements, can help maximize revenue.

 

8. Adding Additional Revenue Streams

Are there other potential revenue streams available in your multifamily property? Common streams of ancillary income include laundry facilities, vending machines, and pet fees. Other potential earners could be renting out parking spaces, communal areas for events, or passes for gyms and pools for non-tenants.

 

9. Technology Integration

Utilizing property management software to increase operations like rent collection, maintenance requests, and tenant communication is not only a time-saver but can lead to happier tenants. Providing high-speed internet as an amenity or including it in the rent can also be attractive to many tenants.

 

10. Green Initiatives

Implementing sustainable practices such as recycling programs, solar panels, or community gardens can reduce costs and appeal to environmentally conscious tenants. Investing in sustainability such as insulation, green energies, and efficient appliances can significantly increase the property value as well.

 

Summary

The choice between passive and active investing often boils down to balancing stability with growth potential. Multifamily investments offer the best of both worlds: steady cash flow from rents as a passive income stream, complemented by the opportunity to enhance returns through active strategies like value-add initiatives. By implementing these strategies, investors can significantly enhance the value of their multifamily properties, leading to higher rental income, reduced vacancies, and ultimately a more profitable investment.

For more information about value add strategies and multifamily investments, contact us!