S.E.C. Real Estate Observer

• Tweet

• Tweet

Most people like top ten lists because you know when they end, right? But if you manage, invest in, finance, or own apartments, you never want to see an end to good ideas for better performance.

1. Location: Buy or build in locations that will drive rent and occupancy increases over time. Look at the long-term history and the future potential of the area. Have there been consistent growth patterns in population, housing units, and businesses in the area? Are there proposed new developments, factories, hospitals, or other job generators in the area? Are there barriers to entry in the submarket?
2. Tenant Retention: Build your business plan in such a way as to reduce turnover. Build or improve for the long haul. Install improvements that will encourage renters to stay. Consider using 24-month leases instead of 6-month or 12-month leases.
3. Improvements: Make sure that your planned improvements will drive rents and occupancy as well as decrease operating expenses. This may include energy-saving improvements or those that shift utility costs to tenants, or improvements that dramatically reduce cleaning costs or replacement costs over time. Examples include replacing carpeted areas with ceramic tile or wood laminate flooring.
4. Technology: Don’t overlook technology items in new developments. Young renters moving in will have had recent student housing experience that far outshines most of the competition in most non-student housing. If you include some of these improvements and the competition does not, you may attract those who now depend on some of these “must-have” technological items.
5. Upgrade: Repositioning existing communities can be very profitable. Exterior curb appeal is one part of it. Upgrading unit interiors is another part. Upgrading the rents and the tenant profile is still another dimension. Eventually the goal is to improve the property dramatically by making moderate investments that have far-reaching results.
6. Young & Old: Don’t overlook niche apartment submarkets like student housing and the senior market. Students often rent by the room, and the resulting total rents may be higher per square foot than typical. Some senior housing developers tell us that they can achieve higher rents because seniors will pay a premium to be around other seniors. In addition, their operating costs are substantially lower due to a number of factors, including lower maintenance costs and substantially lower turnover rates.
7. Analysis: Make sure you do a good rental market survey in the submarket area you are considering. Use apples-to-apples comparisons, regarding utilities and fees included or not included in the rent, pay attention to both per unit and per-square-foot rents, as well as year of construction and amenities.
8. What If: When preparing operating pro-formas, make sure to include several scenarios for each opportunity. Best, worst, and probable are three good ways to do this. This may include different occupancy levels, different rent levels, and different expense scenarios. By the time you’re finished, you may have 10 to 20 different combinations. It is a good idea to know the range of possible outcomes.
9. Show Me the Money: Recapitalizing a property can often make a real difference. We have brought in cash investors forming joint ventures to pay off loans, sometimes at a discount.
10. Low Leverage: Consider using a lower loan to value ratio for financing your property. It will be a much safer investment if you borrow less. The power of leverage is hard to resist, but the power of no debt can be a liberating experience.

These are our top ten performance tips for 2011.

Happy New Year!