Rental Property Investor · Toronto, ON · Member since 2015 · 29 posts · 7 votes
Good day all,
I am looking at putting together a list of ways that people have gone about forcing equity/value in their properties. To start the ball rolling, I like adding a unit/income stream where there wasn't one before (changing use, adding a unit to the attic/basement). Also, buying a property that the previous owner was paying too much for taxes or insurance. Reducing the taxes (through changing the zoning from say commercial to residential for example) or insurance costs can significantly change the value. Ie. - 1,000 per year saving on taxes/ins with 10% cap adds $10,000 in value.
Please share any other ways that you have done to force an increase in value in your properties and we can bounce ideas off each other.
Raising rent helps the top line on that equation - so all the things you can do that support that. i.e. Exterior painting, landscaping...etc.... Also internal improvements such as appliance upgrades, flooring, etc... You need to first check the market comparables to make sure that if you do these things the area will support the increased rents. If your property is already at the high end of the rent spectrum for that property class in that area then spending money won't help. But if you are in the middle and increased amenities would help, then you can look at the ROI of doing it. If you can recoup the cost via extra rent in 12-15 months, I'd go for it.
@ Al Wiliamson posted some unbelievably inovative ideas along those lines, recently. And I believe it was in response to an owner who talked about making the ENTIRE side of her biulding some sort of solar aparatus.
In you have a property in the flood zone FEMA flood insurance is a significant expense in the Central Valley if you have debt on the property. Many owners don't realize you could possibly get out of the flood zone with a elevation certificate by an engineer...
@Tyler Veres I've done a few things to force appreciation with my MF buildings. i've boosted my NOI both by increasing income and in one case reducing expenses. for context, my buildings are in the SF east bay market and honolulu market, both with low cap rates.
2) raised rents this year by 6k. added 85k in value (6k additional income/7cap)
3) rezoned the building from business to residential. saved 8k in property taxes. added 133k in value (8k reduced expenses/6cap ... different market then the above building)
@Kevin Young I really like your re-zoning technique. I need to add that to my list of tactics.
@Tyler Veres I've been asking your question for almost four years now. I've compiled them into a book. I'll see if I can find some BP links on some of the better discussions.
@Annie Bliss you were referring to my Future Landlord BP post that I wrote in 2014. I stopped writing landlord SciFi because it was causing too much confusion in the BP community. Just so you know, Tesla Motors - the makers of the Model S - don't make any money selling cars. Their profits come from selling carbon tax credits. I wish I could have had a serious discussion about how landlords could tap into that market, but the BP conv threads fall into jokes. It's all non-fiction around here.
@Mark Mosch I used to give out the same advice about trying to raise rents at the top of the market. That's until a landlord friend of mine showed me his boquete apartment units. They were half the size of mine but rented for more than prevailing market rates. He taught me that people will pay to escape cookie cutter housing and live in a unique space.
Just so you know, Tesla Motors - the makers of the Model S - don't make any money selling cars. Their profits come from selling carbon tax credits. I wish I could have had a serious discussion about how landlords could tap into that market, but the BP conv threads fall into jokes. It's all non-fiction around here.
Al,
Sometimes you just need to show people. If our backwards federal government would stop fear mongering over carbon tax credits (BC, Québec, and soon Ontario already participate in a market with California) and show some leadership, I'd be "dumb grin" smiling.
As things stand here in NB for the moment, the best I can hope for from our energy efficiency and net-zero power efforts is reverse metering to the point of zeroing out my bill with the electrical utility. If I were in CA, I'd be setting up green roofs and solar farms on my buildings and selling credits.
If you are into that sort of thing, you should check out self-storage facilities and mobile home parks. Those are both businesses based on caps, and you can add revenue as well as reduce expenses.
There are over 40 Different ancillary income streams in the Self-Storage Industry - Truck Rental, Selling locks, boxes, and moving supplies, lighting, shelving, records storage, pack n ship, ebay..... which allows us to "10 X" the value of our facilities.
Unlike Single Family homes, you have a ceiling in the market, and with Multi-family, you can raise rents, but people may leave.
This is the sweetest spot in All of Real estate (In my biased opinion).....
@Al Williamson as you know, regarding "Just so you know, Tesla Motors - the makers of the Model S - don't make any money selling cars. Their profits come from selling carbon tax credits." No. That's not correct. Facts area facts.
Here is the. https://www.sec.gov/Archives/edgar/data/1318605/000156459016018886/tsla-10q_20160331.htm
Page 5 of the report shows that they sold over $1B (1 Billion) in automobiles last quarter. That's $1B in 13 weeks. There is not a single line item on their income statement that supports your statement. They sell cars. They have good margins (gross margins a lot better than Ford's) Their R&D is highest in the industry per revenue $. And they are one of two US car companies that haven't declared bankruptcy:)
F market cap is $54B, TSLA market cap is $33B. Tesla is 1/40th the (revenue) size. It's all about the cars.
hi @Chris Martin thanks for your comment and the backup. I asking my sources at Tesla - San Jose, CA to help me interpret the info. They sit 20 feet away from Elon Musk. Stay tuned.
Hey, look at that. Page 5 of the shows that they sold over $2B (2 Billion) in automobiles last quarter. That's twice what I posted less than a year ago. Could it be they have a product people actually want?
It would be interesting to see what would happen if Tesla were actually allowed to sell their cars in places like NC. Currently it is against the NC law for Tesla to sell their product to NC residents.
A little bit of non-fiction... Tesla posted an 8-K reflecting last quarter's earnings, showing $5.35B (Billion) in automotive sales last quarter with GAAP net income of $143M (Million) and about 80,000-95,000 vehicles produced each of the last 5 quarters. The first preproduction vehicle rolled off the Shanghai gigafactory line in China, a new market for Tesla that is about twice the size (for Tesla) as the US market.
For real estate, and on-topic with this post, what I see is an opportunity to cater to this market by installing/providing charging stations by multifamily property owners for tenants who own EVs. ChargePoint provides equipment for this service, but at the moment I think the price is a little too high for operators of lower-priced property. I don't yet have any data to indicate that adding a charging station as a tenant convenience would positively impact the bottom line of an apartment operator, but I would suspect that larger, higher-priced property would benefit from this kind of differentiator.
From increasing NOI through value add it became a discussion about Tesla.
To answer the question, how do you increase value? Here are just 10 things we did over the years (and this is actual experience not theory) to increase the NOI and increase the value of our buildings:
1. Improving the landscaping (do #1 to #5 to justify rent increases)
2. Repaint the exterior
3. Update the interior finishes
4. Update the kitchen
5. Update the bathroom
6. Install high efficiency windows
7. Doing an energy audit and reducing the utility costs (example: replacing light bulbs with LEDs)
8. Identifying water leaks to save on water costs
9. Getting the property taxes reduced/ getting tax abatement
Good to see this thread restarting. I agree with @Scott Meyers on self-storage. Mobile home parks have some surprising value-adds as well. Our firm invested in a MHP that spent $100,000 adding a one-acre paved gated paid parking area. The annual revenue on that should be $120,000 at full capacity.
Assume a 6% cap rate. The CRE value formula states that $120k/.06 = $2 million increase in value. If you have a $5 million MHP leveraged at 60% ($3m debt + $2m equity), that potentially doubles your equity. That is a whopping value-add!
@Tyler Veres converting old storage rooms into laundry area with washers and dryers. Repurposing any real property on the property.
Example): If there are tennis courts on your property and the current residents there don't use them, figure out what that demographic wants. You may be able to repurpose it into another playground/picnic area, or we may beach volleyball. It basically comes down to the needs of that community to get the most value out of any project you plan on doing