Increase Multifamily Cashflow and Profits With These Simple Tips

Failure to review each property’s profit profile annually is roughly the same as burning money.  There are a number of ways to increase the profitability and cashflow of a single commercial asset or portfolio.  Remodel, Repaint, Reposition, and Repurpose are obvious choices…that typically require significant equity and allocation of resources to accomplish.  Revamp the rent schedule is another…although being too aggressive can actually increase vacancies and turnover costs.  In this post we’ll cover low and no cost solutions, such as lowering property tax, utility and insurance costs, plus enhancing revenue through captive cable programs.

REMINDER: In a 6 Cap rate market every dollar in reduction of expenses (tends) to increase the value of the asset by $16.66, in addition to the increasing NOI.  Permanently shave $15,000 off your operating expenses and you’ll increase the cash flow to the owner by $1,250 per month and increase the value at time of sale by $250,000.

PROPERTY TAXES

Property taxes are the second largest single expense item for many multi family assets.  The truth is that the assessor gets it right much of the time.  But if someone has to pay more than their fair share of taxes it wont be my client.  I became a believer in property tax appeals working on profitability improvement projects in Las Vegas, NV and Tempe, AZ.

Las Vegas, NV:  The REIT I worked for had approximately 200 total 3 and 4 bedroom homes in Clarke County, NV that they purchased from a builder as a bulk sale.  They were on only one tax lot so it was pretty obvious that they were being operated as a multifamily asset.  Part of what we were working on to create additional value was getting them individually platted so we could sell them as condos.  Shortly after the plat was recorded tax bills were delivered and they went up collectively $200,000.   The reason I tell you this is that I called the Clarke County Assessor’s office and told them that I thought the property should be taxed as it was being operated…as an apartment.  I followed up with a formal letter…they agreed and changed back to apartment values, saving the firm $200k per year. 

Tempe, AZ:  When the market started cooling in Phoenix we felt one of our assets was grossly over valued by the Maricopa County Appraiser.  We worked with a vendor and reduced the assessed value by $13,000,000.  That raised the cashflow significantly due to adding $150,000 to NOI.  At the prevailing Cap at that time this would have created a $3,000,000 increase in sales price if the property was to be marketed.

Full Disclosure:  I saw how important property tax appeals were that it inspired me to found a company that does just that.  Prime Property Tax Negotiation appeals property taxes on commercial assets in the US with a focus on OR, WA, and CA.  More information is available at: www.primeptn.com .  You can contact us at:  info@primeptn.com or 503.577.1034.

MULTIFAMILY INSURANCE

One of the best bargains in multifamily is insurance.  Coverage is far more affordable now than it was 5 years ago.  Price per door has actually dropped.  It’s also important to review your coverage.  You should have the higher of what your loan agreement requires, and replacement cost.  This is not a place to go cheap.  The three really good providers are usually well priced…I recommend using them instead of second or third tier vendors.  (If you want my opinions on the best companies and agents please contact me at 503.577.1034 or rick@rosecitycre.com.)  Second thing to remember if you have a portfolio of properties is that you may be able to improve your coverage and reduce your average per door cost of insurance by getting bids based on the portfolio rather than the individual properties.  I worked for a local investor on a portfolio approach and reduced his cost per unit, increased cash flow by $10,000 per month and increased the aggregate value at time of sale by $2.6 million dollars.

RUBS

Utility cost increases that are borne by the owner are a silent profit killer.  When Renters Utility Billing Service (RUBS) is used the landlord pays the utility and bills back to the tenant their portion.  The way to cut the water usage in half is to make the tenant pay for using it.  All of a sudden a toilet that flushes continuously will be reported, as will the under sink leak.  Billing amounts may be derived from sub-metering, or apportioning, and in some cases the landlord actually breaks even or makes a buck.  Be aware that some municipalities have laws regarding the methodology permitted.  This program is good from day one…and will help the landlord from absorbing future utility increases.

CAPTIVE CABLE REVENUE SHARING

A number of  cable signal providers want to shut out their competition.  To secure sole provider rights they offer revenue sharing programs to multifamily property owners.  Most of the ones I’ve checked into require 100 to 200 doors as a minimum.  this can be as a single asset or as a portfolio.  Typical contracts range from 4 to 8 years with an initial payment of $100 to $125 per door and additional quarterly payments totalling $400 over the life if the contract.  When the contract is up you can renew or change vendors.  (Note the numbers cited are for one example…other offers may be higher or lower.) This works out to be roughly $1oo per door per year additional revenue.

HOW MUCH MONEY ARE YOU BURNING?

Contact Rose City Commercial Real Estate for additional information on how to tune up the profitability of your multifamily investments, or to expand your portfolio: Rick Bean, rick@rosecitycre.com. Phone:  503.577.1034.

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