Despite the best wishes of investors, sometimes a multi-family building can run in the red, costing money instead of being a revenue generating investment. Why is this so? In some cases, the economy is to blame. In others, it’s due to the mismanagement of the property.
Maintaining your investment’s profitability or increasing it from its poor state is of the utmost importance. Investors need to keep a watchful eye on their investment to ensure it isn’t bleeding revenue and that operational costs are minimal. Overspending in areas where you don’t need to be can cost you hundreds of dollars if it goes unnoticed for a long period of time. Therefore, it’s crucial to audit your expenses periodically. Being watchful will keep a consistent stream of cash arriving in your bank account.
3 Components to Watch for Your Multi-Family Building
1. Vacancy Rate: Controlling vacancy rates is imperative when it comes to maintaining or improving profits. A high vacancy rate in your multi-family building means less money is being generated by your units. A healthy rental market commonly sees an average vacancy rate of 3%. If your multi-family investment has a much higher number, you’ll have to overhaul your management strategy.
When your vacancy rate is on the higher side, there are several things you can do to decrease it. First, it helps to make your building like more like a home. Keeping the property clean is also a must. When showing a potential renter around the building and unit, nothing will turn them off more than a dirty environment. Trash should be in the garbage and not on hallway floors, in elevators, or common areas. Doing research is also a wise idea. See what competitors near your building’s location are currently charging. If your units are overpriced, that could be a possible reason why your vacancy rate is so high.
2. Utilities: Nothing is immune to mistakes and human error, especially if a document is handled by multiple people. For that reason, it’s best practice to review your utility bills carefully each month. If you don’t understand some charges, call the customer service line of the utility company, and they can explain it to you. When you understand all the components of your bills, it will help you recognize discrepancies when they take place. Monitor your deliveries and cross reference them with the amount charged to on your bill. You can also decrease your utility bills by checking for energy waste in your plumbing, hot water tank, and boiler systems. If your building is experiencing a lot of energy waste, it may be time to upgrade systems to reduce your overall spending.
3. Revenue opportunities: If they know what to look for, investors can cash in on multiple revenue opportunities presented by multi-family buildings. Put that wasted space to use and capitalize on the sweet tooth of your tenants by installing vending machines in common areas. It’s easy for renters to drop a buck or two on sweets and pop when they’re watching television or playing pool. You can also install coin operated laundry units to make more revenue. Laundry services are often on a must-have list for quality tenants. Installing this service can also help you charge more for your rental units. Finally, you can turn wasted space into a money-maker by selling advertising space. Common areas, laundry rooms, elevators, and even the sides of your building are blank canvases to use for the highest bidder.
There’re many ways to ensure your multi-family investment property keeps generating income. Keep a steady eye on your vacancy rates and keep tenant turnover to a minimum while capitalizing on additional rental property revenue opportunities. Once you shift your focus to these factors, your cash flow should see a boost.