The Brooktree Apartments in Salem, Oregon Recently Sold Without a Utility Bill Back Program
Over the past year, we have been witnessing trends in the apartment market and successful owners have focused on increasing income at their properties in unique ways. While decreasing expenses is a way to increase the bottom line, this article focuses on the top ways owners of multi-family properties in Oregon are generating more revenue.
1. Decrease time a vacant unit is vacant: Time IS money! One
client takes a proactive, relationship based approach with his tenants:
“I establish a positive relationship with my tenants, and when they give me notice they are leaving, I will often ask to show their unit prior to them moving out. I typically have the unit rented prior to the tenant leaving, which saves me a few weeks of rent.”
This “invisible” saving is not really invisible. Think of it this way, if you rent the units immediately and save two weeks vacancy, that is $400 on a unit that rents for $800. On a 20 unit apartment building that has 5-10 turnovers a year, that is a savings, no earnings of additional $2,000-$4,000 annually! Relationships do pay off. Additionally, at a 7% cap rate, that translates to an increased value of the property of $27,000-$57,000.
2. Upgrade laundry facility: Another client upgraded the old laundry room located in the dank, dusty basement of a 21 unit building and built out a clean room with safe access at a cost of about $4,000. The tenants now use the laundry “full time”, and he generates about $700 more of laundry income monthly. This $8,400 increase in NOI translates to obviously higher cash flow, and more importantly raises the value of the apartment building significantly (approximately $120,000 at a 7% cap rate). Money well spent invested.
3. Create Utility Bill Back Program: In the Portland, Oregon metro area we are seeing a dramatic increase of apartment buildings moving towards a utility bill back system, where the tenants ar
e paying for their specific utility use. Owners are either billing the tenants back directly, or installing meters to read the water use. Companies like Water Systems Inc. will install meters on the hot water heaters and send the bill directly to the tenants for a few dollars a month.
Water Systems Inc Installs Meters for Apartment Sub-Metering System
There are many articles out there describing the positive effects of a bill back system, including an often quoted amount of an estimated 30% decrease in overall tenant usage. Obviously, owners are feeling the crunch of rising utility costs, especially water and sewer, so this decrease can be substantial. Tenants typically understand the concept of paying for what you use, and it is a way for them to save money as well. However, the
down side of the bill back system is to ensure it is equitable for the tenants. One caveat: make sure to have your attorney review the language in the bill back contract with tenants, as there are a few laws to follow (i.e. it is illegal in Oregon to bill tenants for costs higher than the actual bill to the owner).
The obvious way to increase income is to raise rents, but these three ways appear to be a trend moving in to 2013, as many properties have already increased rents in 2012. Have you seen other ways to increase apartment income? Leave a reply to add to the conversation!
The 2010 Commercial Association of Realtors Broker of the Year Bernard Gehret is
Presenting the Apartment Investor Series Seminar
