5 Ways for Apartment Building Owners to Increase Revenue
It's not just about raising rents. Read our guide to understand how you can improve your property's return in ways that won't upset your residents.
Owning an apartment property can be an extremely rewarding investment in the best of times, but the best of times aren’t always what we get.
While there are strong arguments for almost every investment, and real estate is an ever-popular choice, with apartment properties commanding a fair amount of the praise. When it comes to the benefits of owning an apartment property, one of the more interesting factors at play is the ability of an owner to modify and increase revenues through various means.
In this article, we’ll explore five ways an apartment owner can increase the revenue earned from their property. Many of these options are low impact — and relatively low cost.
1. Vending Machines
Let's be honest, vending machines aren’t usually thought of as popular sources of income. That being said, almost everyone has — at some point or another — made use of one. And a quick peek into the industry is often all it takes to convince a savvy investor of the merits of owning a vending machine or six.
A typical vending machine can be purchased for under $3,500, and can generate anywhere between $35 and $75 in a week, with machines in areas of higher traffic pulling in closer to $400 a month. Depending on the size and layout of an apartment property, it's easy to imagine the possible revenue gains to be had from strategically placed machines in common areas such as laundry rooms, hallways, and lobbies.
2. Laundry Machines
Yes, many modern apartment properties offer units that include washers and dryers, but this isn’t always the case. Apartment building owners who address the lack of in-unit laundry capabilities with more than a crudely drawn map to the local laundromat can see some gains in the revenue department.
Now, on a per-load basis (with the costs of the utilities used in the operation of these machines factored in), an owner typically doesn’t stand to make more than $3 per load in profit — but in family-friendly properties with four or more units, those three-dollar loads add up quite quickly. And while a vending machine can be ignored on a whim, most sane people need to do their laundry on a fairly regular basis. In fact, simply having an on-site laundry area helps to attract future tenants.
3. Pet Fees
We know you’re giving us that look. But pet ownership in the United States is a serious business — with a strong emphasis on business. A recent American Pet Products Association survey found that approximately 70% of American households own a pet. That majority, roughly 90.5 million households, presents an incredible source of potential income for apartment property owners.
Many apartment properties have rules regarding pet ownership, as many pets are capable of causing costly damages or making big messes. Even so, most property owners know that not accepting pets can be incredibly limiting when it comes to occupancy concerns. Truly savvy owners, however, understand that most pet owners are more than willing to dish out a one-time or even monthly fee to be able to move in with their furry loved ones.
4. Reserved Parking
We’re going to take a wild guess and say that most people hate having to search for parking in their daily routines. It also makes sense that there is a truly special kind of hatred dedicated to having to search for parking where you live. Parking spaces can play a huge role in attracting tenants — as many cities and neighborhoods simply do not have adequate or secure street parking or public parking alternatives.
Giving tenants the ability to reserve even one parking space for a fee isn’t just a wise business move, it's almost a no-brainer. Many tenants happily pay for the comfort of knowing they always have a place to park their car, and some are even willing to dish out more for additional spaces. Of course, property owners can only be as capitalistic as their parking lots allow them to be, but all in all, even a one-reserved-space-per-unit model can greatly increase a property owner's income.
5. Storage Units
One only has to look at the insane growth of the self-storage industry to understand how lucrative renting out storage space can be. It's estimated that one in every three American households utilizes a self-storage facility. Even in the most heavily saturated markets, it's rare to find one of these facilities suffering vacancy issues. And while these facilities and their owners are constantly locked in heated competition with each other regarding tenant acquisition, offering the convenience of storage space right where a tenant lives is a trump card apartment owners mustn’t forget they have.
Adding storage space to a property can be a bit of a challenge (if not outright impossible), but these storage units don’t have to be as big or as fancy as their industry siblings to be successful. In most cases, apartment units simply aren’t equipped to be stuffed ceiling high with the earthly possessions of tenants, and even a little extra space goes a long way. As a building owner, your units would offer the most convenient solution to this problem and can be priced fairly competitively. Converting unused space into rentable storage space is a surefire way to increase revenue as well as make the property that much more attractive to potential renters.
Related Questions
What are the best strategies for apartment building owners to increase their rental income?
The best strategies for apartment building owners to increase their rental income are to carefully plan rent increases, do market research on what comparable properties are offering, and to utilize value-add strategies such as replacing the management company, upgrading the units, increasing rents, and finding new supplemental sources of income. Additionally, owners may wish to have tenants pay for their own cable and a larger share of their utilities. For larger value-add deals that require significant property repairs or rehabilitation, an investor may want to get additional financing. Source 1, Source 2, Source 3.
What are the most effective ways to reduce expenses for apartment building owners?
The most effective ways to reduce expenses for apartment building owners include implementing smart building technology, replacing interior and exterior lighting with LED bulbs, and implementing a ratio utility billing system (RUBS). Smart technology can ensure heating or air conditioning systems are utilized only when necessary, lowering everyone’s energy costs. Other proptech can reduce your property management costs, if a tenant can tap a few buttons to submit a maintenance request. Replacing interior and exterior lighting with LED bulbs can have a huge impact on lowering your property’s energy costs, and is linked to higher office leasing renewal rates. A RUBS divides all monthly utility expenses by the number of units in a building, with unit bills being prorated based on the size of a unit, the number of bedrooms/bathrooms, and other factors.
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What are the best financing options for apartment building owners?
The best financing options for apartment building owners depend on the individual investor's needs. For example, HUD loans, agency loans, and CMBS loans may offer better terms than bank loans. HUD loans are insured by the Department of Housing and Urban Development and offer low interest rates and long repayment terms. Agency loans are backed by government-sponsored entities such as Fannie Mae and Freddie Mac and offer competitive interest rates and flexible terms. CMBS loans are commercial mortgage-backed securities that are pooled together and sold to investors, and offer competitive interest rates and flexible terms. Bank loans may also be an option, but they typically have higher interest rates and shorter repayment terms.
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What are the most important factors to consider when applying for an apartment loan?
When applying for an apartment loan, the most important factors to consider are credit history, collateral, and financial state of the individuals behind the loan, historical financials, debt service coverage ratio (DSCR), loan ratios, expenses, debt yield, and more. Additionally, borrowers will need to have good credit (660+ is typically expected) and between 25-30% of the total loan amount as a down payment.
What are the advantages and disadvantages of using a commercial real estate loan for an apartment building?
The advantages of using a commercial real estate loan for an apartment building include access to higher loan-to-value (LTV) ratios, longer amortization periods, and lower interest rates. The disadvantages include higher closing costs, stricter enforcement of prepayment penalties, and the risk of losing collateral in the event of a default.
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