Ways to Increase Income for your Income Property
We landlords always love to increase the income we generate from our buy and hold income properties. However life is generally pretty busy for a landlord and it’s quite possible to have the same rent for years while expenses are always increasing. This obviously puts downward pressure on cash flow. The nice thing about positive cash flow is that our revenues can increase at the same rate as expenses and we’ll still have more cash flow at the end of the year. Here are the many ways in which you can increase your bottom line by focusing on increased revenue:
Annual Increases
Annual percentages rent increases are a great way to always be increasing your gross rental income. But be careful, if you choose a percentage that is too high or unaffordable, your tenant may default or start looking elsewhere. I’d say 1-2% a year is fair and may not upset the balance. But 3% or more may send your tenants packing. It’s easier to raise rent every year as opposed to trying to mark rents to market after not raising it for a few years.
Adding Amenities
By adding in-unit or on-site laundry you may get a decent bit of extra rent for each unit that utilizes it. Another amenity could be a dishwasher in a unit that didn’t have one. Common area amenities such as a bike room can also increase rental income.
Cosmetic Rehab
There can be a very large rental spread in your area between dated apartment values and renovated apartment values with the latest amenities. You’ll have to run some numbers like the return on a rehab investment but in the right area, this can make a lot of sense. For example, if you had to pay only $7,200 for a new kitchen and it would increase rents by $300 per month for that unit, that would be a cash on cash return of 50% in just the first year. The payback period of this investment is only 2 years! Slam dunk.
Coin Laundry
This is a really good one. In a decent size building with a lot of tenants, you could be bringing in hundreds of dollars a month in quarters. The down side is the maintenance and having to remove the quarters periodically. Great excuse to check on your building though!
Storage
This is another really good one. A lot of buildings have a ton of unused square footage in the basement. This extra space is underutilized and just collects dust. If you have the space and cannot make a legal apartment out of it, use it for storage, secure it and charge monthly fees for those to access it. Depending on the density of the area and the amount of storage available in apartments locally, you could find yourself with a lot of demand for your on-site storage. In Chicago, you can get anywhere from $25-$150 per month for a secured storage unit in a basement or attic.
Parking
Do you have a garage you aren’t charging any rent for? This needs to stop! Parking is worth something and you should charge for it. If you have extra space in the backyard, you can pour concrete to create a flat parking pad for multiple cars parking tandem. On a 30+ foot wide lot you could fit 6 cars tandem and charge $50-$300 per spot depending on the location. That’s $300-$1,800 per month in extra income using this scenario.
Attic or Basement Apartments
This is a hot topic in Chicago. Some attic and basement apartments are legal, some are illegal. Independent of legality, it is an opportunity for a significant increase in rental income. If you find a way to legally add an apartment in your building without trenching a basement or dormering an attic, then you will likely have a very positive return on your investment. See my other post “What Makes a Basement Apartment Legal” for more details on legality in Chicago.
Expand
Check local zoning ordinances, but you may have the right to expand the footprint of your building. Should this be the case, you may be able to increase square footage of your apartments, add to bedroom and bathroom counts and ultimately increase rents. Some scenarios where this may make some sense is where you have:
- A severely distressed property and you have a lot of possible equity to gain.
- A large lot with a small property and the appropriate zoning.
- An existing unfinished space such as a back porch or front porch that can be finished and utilized by tenants as a bedroom, storage or living space.
Short-Term/Vacation/AIRBNB Rentals
By converting your building to short-term rentals, you could see a large increase in revenues. In some cases double or more. This works in resort areas, dense highly attractive areas where there is no room to build to meet demand and vacation areas. A few examples in Chicago may be small apartment buildings near Wrigley Field, small apartment buildings in River North or Gold Coast near the lake or apartment buildings in the heart of Wicker Park/Bucktown and Logan Square very close to the trains.
No matter what you decide, there will always be ways to increase income. Just make sure to calculate the ROI before getting started.
Check out my website for more information at www.chicagoREinvestment.com.
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