S.E.C. Real Estate Observer

• Tweet

• Tweet

by Ernie Eden, S.E.C., CCIM and John Yam

There are many things an apartment owner can do to improve the bottom line in apartment operations. They fall into two broad categories: (1) increasing income and (2) reducing expenses.

Some of the suggestions listed below fall into one category or the other, and some actually apply to both.

1. Pay attention to curb appeal.

Your prospective residents’ first impressions often will determine whether or not they pull up and park at
your leasing center. Let’s start at the driveway as a car enters the community. Is the grass cut, shrubs freshly pruned and flowers planted? Is grass growing everywhere it should be? Are the beds weeded and mulched? Is there any erosion that needs attention? If some curbs are painted red or yellow, is the paint fresh-looking? Are the streets, sidewalks and grounds free of trash and debris? Does the surface of the driveways, parking lots and sidewalks look nice? Is the signage fresh-looking and useful? Is it easy to find the leasing center or office, or find out how to ask about renting a place? Are the buildings,
roofs, and fences in need of paint or cleaning? If there is a playground, is all the equipment complete and in good repair? Is the surface of the playground safe and maintained appropriately (clean and soft landing area)? If there is a pond, does it look inviting, or have the beavers turned it into a mud flat? Do you have the “friendliest people in the world” greeting prospective residents and showing them around? Does the
maintenance staff wear uniforms that identify them as part of the community or the management company? These things can put money in your pocket, by enticing prospective residents, helping your existing tenants decide to renew their leases, and instilling in them pride in the community that may encourage them to ask their friends and acquaintances to move in.

2. Consider adding one or more profit centers.

Adding vending machines, a laundry room (or perhaps more for larger communities), storage units, garages, in-unit washers and dryers, cable, phone and/or internet services (controlled by the property and offered to
residents), or even a day care center, a coffee shop, or a small convenience store on site are just a few ways to add money to the bottom line. Access to some of these could also be used as an enticement to
signing or renewing a lease.

3. Add amenities to your property.

In addition to those mentioned above, a few ideas here include covered parking, a pool or clubhouse, playground areas, ball fields or other recreational amenities, hiking paths, outdoor picnic areas, fitness centers, gated access, free cable or internet services, a staffed after-school program or summer camp for kids, regular activities such as speakers, seminars or classes, bingo in certain communities, and sports teams. The possibilities are endless and are limited only by the imagination and what the market may find useful and interesting to both management and residents.

4. Invest in rehab that will increase rents and occupancy.

Laminated hardwood flooring to replace carpeting is an idea you may want to explore. This can work both ways, because in addition to adding value in the eye of the resident or prospective resident, the maintenance, replacement, and cleaning costs compared to carpet can be quite favorable in many markets. New kitchen cabinets and counters, appliances, built-in microwaves, ceiling fans, bath fixtures, and lights can also command higher rents.

5. Increase lease rates and lease terms.

Once you use some of the ideas above to make improvements, perhaps you can negotiate with your tenants or prospective tenants. Maybe you can entice someone to renew or lease for 18 months at a higher rate if you put in a new laminated floor in place of carpet (an 18-month lease term instead of a 12 month term will save 33% of your turn costs over time). Maybe you do the same for a refrigerator or a new stove (which you probably need to do anyway). If you should be so unfortunate as to suffer fire damage, maybe you upgrade the units a little and charge an extra $100 a month as a result of it being not only new, but upgraded. If your property is running at 97% or better occupancy, maybe you need to make sure your rents are increasing upon renewal each time like clockwork, so that larger increases are not ever needed.

6. Invest in energy-saving and water-saving improvements that will save money every day
or shift entirely the burden of monthly payment.

This might include installing separate water meters and piping so that tenants pay their own water directly to the water provider. In Atlanta, for example, this is a huge expense, and can cause a major increase in NOI. In the same vein, an owner can eliminate central or building hot water tanks and install a hot water system in each unit, letting the resident pay for heating the water as part of their monthly utility bill. If the heating
and/or power is centrally metered, the same thing can be considered for HVAC and also general power supply. If you are not yet ready to make these major changes, consider other changes that will result in the property lowering its consumption for the utilities the owner pays for, such as replacing toilets, shower heads, and faucet strainers, adding insulation, and other similar actions. Simply having maintenance
change out the furnace filters every other month in every unit will reduce maintenance costs and increase the useful life of HVAC systems.

7. Think of the possible ways you can reduce turnover in your community and implement as many as you can.

This single effort can result in major changes to your NOI, because the cost of turnover is one of the highest costs in operating your community. You can save not only the cost of cleaning and refitting the unit upon turnover, but also the rent for the period the unit is vacant, the advertising cost for that unit, and the cost and overhead of the personnel required to re-lease the unit.

8. Bid out everything you do, and make sure that you get at least three estimates.

If you do decide not to go with the lowest bidder, make sure you know exactly why you are doing so. This should include not only insurance, but also everything that you contract for on the property, such as landscaping, snow removal, unit make ready, cleaning services, pool service, pest control, glass replacement,
locksmith services, plumbing, electrical, HVAC, elevator services, and anything else that is not taken care of in-house. For landscaping, consider asking for a bid that is paid on a per cutting basis, as compared to a monthly service. It may be that you don’t really need to pay the same to cut the grass in December or January as you do in May, and you should keep this in mind.

9. Contest your tax bill every year unless it goes down.

There are consultants who will do this for you automatically, for a percentage of the savings. In fact, some owners have the county or city send their tax bill to their tax consultant instead of to the owner every year.

10. Consider re-positioning the property in some way.

Perhaps you can change the occupancy from a low income community to a middle income community, from a family community to a senior community, or to a student community. Any one of these changes could increase your NOI dramatically.

These are just a few ideas to increase your NOI. If we can provide additional information to you or your associates, please contact us at 404-876-1640 or at Ernie@BullRealty.com.