Hello Moguls, Chris Urso here bringing you another great lesson about apartment investing. There are a number of ways to add value to an apartment property and I’ll be going over several options for you in in this lesson.
First of all, it’s important to acquire properties that have quantifiable value-add components. There’re 2 different ways to add value – one is physical and the other is operational. We look for issues in either one of these areas and both are important… however, our discussion today will be about the physical aspects.
My company’s strategies are not to bring in the cleanest or the newest properties. We look for properties that have major issues – that we can fix and improve.
Physical Improvements to Add Value
Curb Appeal
First area that we can enhance is the curb appeal – this might include:
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Signage
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Landscaping
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Parking lots
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Exterior paint
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Residing buildings
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Common areas
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Fixing things that are broken
Most of the buildings we look at were constructed in the ‘70s and ‘80s and have not gone through many upgrades or improvements over time. But they have a good location in our target markets and can sustain an upgrade.
Rebrand
We like to rebrand the property and change the image by elevating the property in some way. Elevate the tenant profile; occupancy; and rents. This is our goal in all the efforts that we put forth.
Amenities
How can we get our property to catch up with the neighborhood and the tenant profile? A big part of that is the amenities.
In our Southeast markets, we go for outdoor kitchens and picnic areas – this gives an amenity that is unique. In our B properties, we might add stone, built-in gas grills, a fire pit, built-in seating, umbrellas and tables.
For C properties, it might be something as simple as putting in gas grills and picnic tables. We want to provide tenants a “gathering space” to give a feeling of community.
Pool areas is a big attraction, but some of these have pool furniture purchased in the ‘70s and never updated. These are little things that can change the look and feel of the property.
Fitness centers are big, so we go in and redefine the space by modernizing it with new equipment. We go for good cardio equipment, barbells, Yoga mats, etc.
The clubhouse and leasing office is crucial because this is the main entry point that people walk into. This pertains to both our existing tenants and prospects. We’ll change furniture and flooring, modernize it and redesign the space. We do this across all our properties and look for more ways to create gathering spaces...
Can we create a clubroom and put a big 60” TV in there? And maybe add a kitchen with tables and a game space? This is an area that tenants could rent out to watch sporting events or for parties and showers.
If it’s a family-friendly community, playgrounds are essential; we definitely update equipment in this area.
Dog parks are really big these days – we create a place for pets to exercise and add seating for the residents.
How This Creates Value
So, some of these are not direct dollar-for-dollar results of how much I’m going to increase the rent. What it does is create a trickle-down effect...
It’ll allow us to raise rent and be more competitive with nicer properties in the market. But it will also draw in better quality tenants who will, hopefully, stay longer. This, in turn, reduces delinquency and increases occupancy.
And here’s something to keep in mind…
We start with the outside improvements, and then move to the interior. Many investors make the mistake of buying a rundown property, then renovating apartments to get them filled, before moving to the exterior. What they don’t realize is that they’re not going to fill those units if they don’t have an appealing appearance from the outside first.
See, we come in with the shock-and-awe effect in our first six months of the takeover where we transform the exterior quickly and aggressively. We make a splash in the market, letting people know that this is not the same type of property that it was before. It shows our current residents that we care enough to invest in the property.
Interiors Improvements
Only after the exterior is complete do we start working on the interiors. For some properties, this might mean everything within the unit:
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Flooring
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Paint
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Countertops and backsplashes
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Appliances
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Lighting
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Bath vanities
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Reface cabinets
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New hardware
For some of our C properties, it’s just a matter of going in and doing a thorough cleaning.
This Is How You Do It
The bottom line is that this is how you do a value-add on a multi-family unit and ultimately increase rent, increase occupancy and increase the value in the property.
Now get to it.
Your Turn
Did this bring a few new ideas to mind for you? Or questions? Well, talk to me below in our comments section.
Assess your property by scoping out the neighborhood and other similar properties
Always begin add-value work on the exterior – rebrand by the outside appearance
Choose the extent of the interior work by the grade of property you’re working with
Christopher Urso
is the founder of URS Capital Partners and National REIS. Chris has been investing in real estate since 2001. Over the years he has been involved in all aspects of real estate, from single-family fix and flips, buy and hold cash flow houses, and finally to apartment buildings. His real estate investment career only took off when he purchased his first apartment building 3.5 years ago. He now controls over $15,000,000 of apartments and has raised over $8,000,000 of private money in just over 3 years. He now structures investment partnerships to acquire large apartment complexes and also private coaches investors helping them purchase their own apartment buildings.