ADD LIVABLE SQUARE FOOTAGE
CUT UNNECESSARY EXPENSES
One way to add value to our properties is to add livable square footage, whether by finishing basements, attics, or converting storage or closets and creating home offices. With more people working from home, adding flex or office space is considered a big benefit for buyers and tenants. In the Airbnb market, adding additional space that is semiprivate and furnishing it with roll-away beds or pull- out couches allows owners to advertise as sleeping more people and increase nightly rates. In many instances, you can save money by framing and finishing walls and adding flooring but leaving ceilings unfinished and painting them black. Or install barn doors so that you don’t have to frame doorways, thus providing more versatility to the end user. These renovations are cost effective, worthwhile and provide great ROI regardless of investment type.
Like most properties, our properties had printers for lease applications, tenant notices, and other miscellaneous communications. At $200/month rental and $300/quarter allowance for ink and paper, this was a $3,600 annualized expense. While $3,600/year does not seem like a huge expense, what if I told you it was actually costing $90,000 + $3,600/year? The most common way to evaluate multifamily properties is through the NOI approach. The NOI approach takes the Annualized Total Profits - Expenses and divides that by the Trading Cap Rate. Using this formula, a $3,600 reduction in expenses in a 4-cap market translates to $90,000 in evaluation! That’s a pretty expensive printer! On a multimillion-dollar property, $90,000 might not seem like a lot of money. However, this is just one example of many that we focus on when looking to maximize value for our investments.
WITH MORE PEOPLE WORKING FROM HOME, ADDING FLEX OR OFFICE SPACE IS CONSIDERED A BIG BENEFIT FOR BUYERS AND TENANTS.
A $3,600 REDUCTION IN EXPENSES IN A 4-CAP MARKET TRANSLATES TO $90,000 IN EVALUATION!
Ashley Wilson Real Estate Investor Author of The Only Woman in the Room Read Ashley’s Book
Kelly Stumphauzer CEO and Founder Prosper Investments Connect with Kelly
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