By Michel Limoges, a chartered real estate broker with the Ayotte team When you own an income property, you can’t simply collect rents with minimal management of the premises, and without questioning the cost of operating expenses. In so doing, you forgo potential savings and run the risk of stagnating the value of the property, or failing to increase it to its full potential. On the contrary, it’s important to regularly consider ways of increasing value and reducing costs. Here are just a few of those ways.
1. Renovate for the benefit of owners and tenants
Renovations immediately spring to mind when you’re looking to increase the value of a multi-unit building. However, such work is costly and will only pay for itself in the medium to long term. They therefore require solid planning, careful consideration of bids from a variety of serious contractors, negotiations and careful monitoring of the worksite. And I’m not talking here about ” renovations “, but about renovations of empty dwellings, i.e. before they are rented, or occupied, if this work is also done in the interest of the tenants and with their agreement. The latter will generally be open to a rent increase due to renovations that will genuinely improve their quality of life.
An excellent practice is to meet with tenants before a lease renewal to discuss possible renovations with them. They may be able to suggest work that you might not have thought of… and that will increase the value of your building! According to a survey by the Appraisal Institute of Canada, bathroom and kitchen renovations offer the best return on investment.
Of course, depending on your needs, you may opt for floor or roof repairs, painting, replacement of doors or windows, furnace replacement, and so on.
2. Add units or divide one to make two
While large units are in demand, they’re not necessarily the most lucrative for landlords, and smaller apartments can still be rented. Take, for example, a 6 ½ unit rented for $1250 a month. If his landlord is able to make two 3 ½ apartments, which will then look good because they’re brand new, at a monthly rent of $775, he’ll earn $300 a month in rent. You can also make a unit out of an unoccupied space, such as a basement. Of course, you’ll need to make sure that such conversions are permitted by the municipality.
3. Rent unused space
Speaking of unoccupied places, it’s sometimes possible to rent some of them out, but not necessarily as housing, according to this principle that every landlord should always keep in mind : any space can be translated into rent. And what kind of space is that?
Parking and storage spaces, of course. There are also basements and sheds. And have you thought about the roof of your building? If it’s easily accessible, perhaps you could turn it into patios or even private vegetable gardens, rented out as an extra to your tenants. And could your building’s outdoor space accommodate a swimming pool? This, too, would be a great way to increase rents. What’s more, some of these areas could be of interest to people in the neighborhood other than your tenants. You could, for example, rent out one or more of your parking spaces to neighbors in no time at all, if your building’s neighborhood doesn’t have many of them.
4. Reduce your operating costs
Too often, owners of income properties believe they have little or no leeway when it comes to recurring costs. Insurance, maintenance of landscaping and interior common areas, snow removal, heating… Is it possible to reduce the cost of these budget items? More often than you might think. And every homeowner should strive to limit price increases. There are two keys to achieving this. They are: getting several quotes on a regular basis, and (re)negotiating. You get along well with the guy in charge of snow removal and are satisfied with his services? That’s great. But getting a better price or the same quality of work at a lower cost from another contractor is even better. When it comes to insurance, competition is fierce.
Take advantage of this by requesting a proposal from several insurers and negotiating. You can also lower your premium by agreeing to increase your deductible. The price of energy, particularly fuel oil, has risen sharply, which may encourage you to choose another energy source, such as electricity instead of gas. And that’s not counting all the energy-saving measures : insulation, smart thermostats, LED light bulbs, door and window caulking, etc. All these ways of increasing the value of your multi-unit building and reducing its operating costs are within your reach. The important thing is to keep them in mind at all times, and to put them to the test whenever you can. Your prosperity depends on it! Would you like more advice on these topics, or would you like to buy or sell a multi-unit property? Contact us today. I also invite you to read our article The advantages and disadvantages of owning an income property.