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Creating Value in Apartment Buildings

Apr 8, 2008
The way to create value in apartment buildings is to increase the NOI. The NOI is the Net Operating Income. Very simply, you calculate the NOI by subtracting your expenses from your revenue, on an annual basis. Your expenses include everything for running the property but do not include the mortgage payment, which is otherwise known as your debt service. The expenses you need to include in your calculation are property management, taxes, property insurance, maintenance and repairs, and utilities. Revenue includes rents and any other income you have in the property like vending machines, laundry room, and late fees.

So how can you increase your NOI? There are several ways to do it. Here are a few:

1. Raise the rent. If you raise the rent $10 per door, you have increased your revenue. Depending on how many units you have, a $10 increase could be significant. In a 10-unit building, your revenue has increased $100 per month. In a 100-unit building, your revenue has increased $1,000 per month. Not only do your increase your NOI, but you also increase your equity. This increase in NOI will have an effect when you refinance with the bank.

2. Put in a Laundromat. You can increase your revenue by adding amenities such as a Laundromat. Not only will you get revenue from the Laundromat itself, but you'll also increase the value of the apartment complex, and in doing so, you can raise rents because you have provided convenience for the residents.

3. Add covered parking for an added fee. Some people will pay extra for covered parking. It's a one-time cost for you, but the monthly fees you'll accrue increase your revenue and therefore increase your NOI.

4. Add storage spaces. This is another example of how you can add value by providing convenience to your tenants. Instead of having to drive to a storage unit, they can use one of yours on site. You have again added value, and your NOI increases.

5. Other amenities. The following amenities could be added to your apartment building: exercise room, pay phone, vending machines, security gates, clubhouse rental, a daycare center, trash pickup at doors, house cleaning, Internet access, phone service, cable or satellite service.

Each of these ideas will add value to your apartment building and increase your Net Operating Income. Therefore, your equity will increase, and you'll be better able to leverage your asset into bigger and better investments.
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