I’m 18 years old, from Canada, Montreal. My parents own a bunch of 5-units buildings, adding up to around 60 units. My dad has been very sick so I’ve recently been trying to help my mother manage and rent the units.
The market grew a lot during the last few years and I’ve realized that our rents are below average (about 50-100$ below). When you make the math (60x-75$x12 = -54,000$/year) it hurts to lose so much potential money.
So let’s say you were in my shoes, what would you do to maximize the value of those properties? If you were to do 5-year plan, what would be your goals? I know those questions are pretty vague, but I just don’t really know where to start. Propose me anything, I’m ready to work my ass off!
What’s your vacancy rate like? Do you pretty much stay full all the time? You might not be losing as much money as you think. People who push the market will have more vacancies as tenants will be able to find a better deal elsewhere.
Work hard to keep the good paying tenants. If you decide to bump up the rent, I suggest you do it over time rather than $50 or $100 at once. Smaller amounts will just be a minor inconvenience and your tenants will likely still pay if they’re otherwise happy. If you send a notice that the rent next month is $100 higher, plan to see lots of people moving out.
Is there something you can do to improve the properties economically if you’re going to raise the rent? Maybe put in ceiling fans if they weren’t there before, make things look a little better outside, etc?
I just googled the vacancy rate in Montreal. CMHC says the vacancy rate is going from 2.7% to 2.2%. http://communities.canada.com/montrealgazette/blogs/realdeal/archive/2011/02/21/mtl-edges-below-to-on-vacancies.aspx With rates like that, I’d say go for it. Phase it in one building at a time to get an idea of what the turnover rate and turnover costs will be like and whether it’s worth it to do to the next building and then the next. You may have justified yourself to your parents hiring you for the difference. Smart thinking.
At the moment we only have one empty unit. It is being renovated (new kitchen and bathroom). The rent was 500$ for a 3 bedroom (HIGHLY below average). We already have someone ready to take it for 1100$.
Concerning the renovation cost, is it possible to calculate the ROI for renovation? For example, how would you determine if it is worth it to replace the apartment’s windows at 3,000$ and boosting the rent by 90$ or something. I hope you get the picture of what I’m trying to say as English is not my first language
My mother usually just increases the rent by 5$ every year which is in my mind not nearly enough to hit average rent. For example, I rented this summer a fully renovated 2bedroom on the 3rd floor for 700$ while the person on the 1st floor with the same kind of apartement (although not renovated) currently pays 435$.
I did a google search on ‘‘turnover cost’’ as I’m not familiar with that term. I think it will come with experience, like right now I don’t really know how much renovating a kitchen would cost. But I bet I know you guys can walk into an apartment and shortly after shoot a ballpark of the renovating costs. That’s what I hope to achieve.
I thank both of you for your insights. If you or anyone have more I would be grateful. ty.
Seems your off to a good start, hang around this forum a while and you’ll pick up some good nuggets. Many experienced and successful REI’s around here.
Now, I am not as seasoned as many on here but I have experienced a remodeling of a multi-unit. You have the right idea, focus on the kitchen, bathroom, and windows. Kitchen and bathrooms have the largest ROI by far. Start educating yourself on the financial side of business by visiting Investopedia; here is a link that specifically talks about the ROI for property remodeling http://www.investopedia.com/articles/mortgages-real-estate/08/add-value-to-real-estate.asp
Understanding the financial side of your business is what will make the difference between being an average business professional and a highly successful one. Investopedia is loaded with tons of information; formulas, articles, explanations, anything and everything you need to know.
Labor and materials costs differ widely in different areas. Where I live in TN the cost of living is low, thus property values and labor costs are quite lower than than they are in say NYC. I did a major renovation on my duplex, complete gut and remodel. I spent 15k on one side, and about 20k on the other. I’d say 5-6k was easily spent on each kitchen; new cabinets, appliances, counters, sinks, tile backsplash, etc. Use Microsoft Excel or a similar programs and track the costs of your renovations, after doing a few you’ll learn what the associated costs are for each type of upgrade. Then you can take those costs, divide by the sq. ft of the units and know a ball park figure when you enter a unit simply based on its size.
Thanks for asking this question ONEsecond. The fact that you’re thinking about this is a great sign that you’re on the right track.
I agree with the others on the forum that say you should raise the rents to market rates. I will also add that you will want to do this as their rental agreements come due to renew.
About 60 days before the rental agreement is due to expire, you will want to approach them with the new rental agreement that has the increase in it. If they do not sign it at that point and give you notice that they will not be renewing then you will have a chance to start to market the property to minimize vacancy between the vacating tenant and the new tenant.
I would also limit the increase to not have too large of a jump. What is that number? I’d be reluctant to increase it more than about 5%, but that’s really just an opinion and is not based on any hard evidence. If they decide NOT to renew, I would set the new rent to be the true fair market rental amount for the new tenant though.
If you find that the fair market rent is more than 5% higher than what they are paying I would also not hesitate in mentioning to the current tenant that you did some research and found out the true fair market rent for this type of unit is [what you found it was], but that their rent is only going up to [what 5% more than they are paying is] to do it gradually.
As an aside, I put in all my leases that rents go up 10% per year automatically so that when it only goes up by something smaller than that (or doesn’t go up at all) to meet fair market rent it is a win for everyone.
I hope that helps and please let me know what you decide to do. I’m interested to see how it goes for you.
