How to Add Value to Multifamily Properties

Investing in multifamily properties can be a rewarding way to build wealth and generate income. However, in today’s competitive real estate landscape, simply owning the property may not be enough to maximize returns. To truly unlock the full potential of your multifamily investments, you need to actively find ways to add value. There are numerous strategies that owners and operators can implement to increase income, reduce expenses, and improve the overall desirability of the property. Let’s explore some of the most effective ways to add value to multifamily properties.

The Power of Adding to the NOI

One of the most powerful ways to increase the value of a multifamily property is by boosting its Net Operating Income (NOI). Even small increases in monthly income can have a significant impact on a property's overall value when applied across multiple units and evaluated based on the capitalization rate (cap rate). For example, imagine you own a multifamily property with 100 units, and you reduce each unit's expenses by $20 or are able to provide a service or upgrade to get $20 more in income. This seemingly small change adds an additional $2,000 in monthly income, which translates to $24,000 annually. When you apply this additional $24,000 in annual income to a property with a 6% cap rate, the value of the property increases by $400,000. This is a clear illustration of how small adjustments in income can lead to substantial increases in property value, further driving the long-term returns on your investment. What happens when you add a couple hundred per unit to NOI?

Increase Income Streams

The most straightforward way to add value to your multifamily property is by increasing its income. This can be achieved through raising rents, adding additional revenue streams, and providing services or amenities that tenants are willing to pay for.

Storage and Amazon Package Lockers

Storage is one of the easiest and most effective ways to increase income. Many multifamily properties have unused spaces such as basements, attics, or underutilized common areas that can be converted into storage units. Tenants, particularly those living in smaller apartments, are often willing to pay extra for additional storage space.

Similarly, providing secure package lockers for Amazon and other delivery services can add convenience for tenants while generating additional income. With the rise in online shopping, having a secure location for package deliveries is becoming a necessity. Charging a small fee for locker access or allowing tenants to rent larger lockers can provide an additional income stream.

Spread out security deposits

I haven't personally tried this yet, but I've heard of some operators adding a fee each month to increase NOI instead of taking a security deposit. This adds revenue each month where security deposits do nothing for the value of your property and bottom line.

Charging Tenants for Cash or Check Payments

Another strategic way to add value to multifamily properties is by implementing a fee for tenants who choose to pay rent via cash or check rather than through online payments. While digital payments are more efficient and secure, processing physical payments requires additional administrative time and costs. By charging a small convenience fee for tenants who prefer to pay by cash or check, you can offset those costs and encourage the use of online payment platforms. This not only improves operational efficiency but also provides an additional revenue stream. An example may be charging a $10 fee per month for tenants who opt for physical payments.

Pet Fees

In today’s pet-friendly culture, allowing tenants to have pets can significantly increase demand for your units. However, pets also bring additional wear and tear on the property. To offset this, you can implement pet-related income streams, such as charging monthly pet rent, pet deposits, or fees for pet amenities like pet washing stations or dog parks.

RUBS (Ratio Utility Billing System)

Implementing a Ratio Utility Billing System (RUBS) allows you to recapture some of the utility costs that are often absorbed by landlords. Instead of including water, gas, or electricity in the rent, you can charge tenants based on their estimated usage. This not only increases income but also encourages tenants to be more mindful of their utility consumption.

Garbage Services and Payment Fees

Many properties have been able to increase income by offering convenient garbage pickup services. For a small fee, tenants can have their trash picked up at their doorstep and taken to the dumpster for them.

Rental Insurance Profit Sharing

Many properties require tenants to maintain rental insurance, but did you know that you can also earn a share of the premiums? By partnering with rental insurance providers, you can offer tenants access to affordable rental insurance plans and receive a portion of the insurance premiums as an additional income stream.

Paid Laundry Facilities or In-Unit Laundry

If your property does not already have laundry facilities, adding paid laundry machines in common areas can provide a steady stream of additional income. Installing modern, card-operated machines or offering a laundry app can make this an easy-to-use amenity for tenants while bringing in extra revenue. For higher-end properties, adding in-unit laundry machines can justify a rent increase while offering tenants a desirable amenity. Sometimes you can also "rent" laundry machines to tenants for a monthly fee depending on the market.

Reduce Operating Expenses

Adding value to a multifamily property isn’t just about increasing income—reducing expenses is just as critical. Lowering operational costs directly boosts your property’s net operating income (NOI), increasing its overall value.

Negotiating Internet and Utility Contracts

One of the quickest ways to reduce expenses is by negotiating bulk utility contracts with service providers. This could involve internet, cable, or even bulk purchasing of water, electricity, and gas. Many providers will offer discounts for bulk services, allowing you to lower your expenses while potentially adding the option to upcharge tenants for these services. There are many instances where you can negotiate a bulk internet rate or exclusivity contract which charges the tenants less than what they were paying allowing you to keep the difference or offer a better service to the property.

Fraud Detection Services (Snappt)

Using fraud detection services like Snappt can help you detect fraudulent pay stubs and bank statements before approving tenants. This minimizes the risk of having tenants who may not actually be able to afford the rent, reducing delinquency and eviction rates. By lowering your default rates, you can save significant money in turnover costs and vacancy loss. This has become a serious problem in recent years where people can actually buy an application packet.

Energy Efficiency Upgrades

Installing LED lighting throughout the property can significantly reduce electricity costs. Replacing outdated appliances with energy-efficient models and upgrading to low-flow faucets, toilets, and showerheads can also reduce energy and water consumption. Over time, these small changes can lead to substantial cost savings. Implementing smart thermostats, which allow for greater control over heating and cooling, can further drive down utility expenses.

Leak Detection and Water Conservation Programs

Water leaks can quickly escalate into costly repairs, as well as increase your water bills. Installing leak detection systems can help identify leaks before they become major problems. Additionally, adopting a water conservation program can minimize unnecessary water usage across the property, ultimately reducing your utility expenses.

Raising Rents Through Strategic Improvements

While reducing expenses and adding additional income streams are crucial, strategically raising rents can also add significant value to your multifamily property. This doesn’t mean simply increasing rents across the board; it involves making targeted improvements that justify rent increases.

Upgrading Kitchens and Bathrooms

One of the most impactful ways to increase a property’s value is by upgrading kitchens and bathrooms. Replacing outdated appliances, installing modern countertops and backsplashes, and updating fixtures can make your units more attractive to potential tenants, allowing you to raise rents. These upgrades don’t need to be overly expensive—sometimes even small changes, like new cabinet hardware or energy-efficient appliances, can make a big difference.

Minor cosmetic enhancements

Another area to consider investing in are the purely cosmetic areas of the property. This is especially true when certain elements make an apartment look outdated. Some great examples of this may be old carpet or aging paint which can be replaced with a newer luxury vinyl and modern paint color to increase demand for that unit. The same could be done with outdated doorknobs and light fixtures.

Amenities and Leasing Office Enhancements

Amenities are another key factor that can help justify rent increases. Installing modern amenities such as a fitness center, business center, pool area, BBQ area, playground, or community lounge can make your property more appealing to potential tenants. Updating the leasing office to create a welcoming environment can also contribute to an overall positive impression of the property.

Smart Home Devices and Security Upgrades

Incorporating smart home devices such as keyless entry, smart thermostats, and smart locks can increase the desirability of your units and allow you to charge higher rents. Tenants are increasingly interested in technology and convenience, and smart devices provide both. In addition, smart security upgrades can add peace of mind for tenants and reduce the manpower needed for managing traditional key systems.

Keeping Vacancies Low and Scale Benefits

Reducing turnover is another crucial aspect of adding value to your multifamily property. High tenant turnover increases expenses related to advertising, maintenance, and unit preparation. Keeping turnover low through excellent management and proactive maintenance ensures a stable income stream.

Adjust Rent for Vacant Units

It’s important to monitor vacancy rates closely and adjust rents for vacant units accordingly. Offering short-term rent concessions or lowering rent slightly for units that have been on the market too long can help you fill vacancies more quickly, ensuring consistent cash flow. Keeping units empty for extended periods of time can be much more costly than offering a slight discount to fill them quickly. You can also unplug appliances and adjust HVAC in these units to save on costs.

Lowering Property Management Costs with Scale

As you grow your portfolio, you may be able to reduce property management costs by achieving economies of scale. The more units you own, the better negotiating power you have with property management companies. Alternatively, you can bring management in-house as you scale, reducing the fees paid to third-party managers and gaining greater control over day-to-day operations.

Conclusion

Adding value to multifamily properties is a multi-faceted process that involves both increasing income and reducing expenses. By implementing strategic improvements, offering desirable amenities, and managing operational costs effectively, investors can significantly increase the value of their multifamily assets. Whether it’s through introducing new income streams like storage or pet fees, reducing energy consumption with LED lighting, or upgrading units to justify higher rents, there are numerous opportunities to enhance profitability and create long-term value in the multifamily real estate market.