Decreasing Expense
When you become an apartment building investor, there are several strategies to utilize to increase profits. Profit is the very reason you begin investing in apartments, so let's look at a few tactics you might take to increase profitability. The strategies are relatively simple. Increase income or decrease expense and you'll increase your bottom line. This article will cover expenses. Expect to see income producing tips in the next few days.
Let's start with vacancy. Decreasing the vacancy rate or the time it takes to turnover a unit increases cash flow. Insist on receiving a rent roll and delinquency report often to make sure your apartment building receives the attention it needs and deserves to reduce turnover time and maximize resident satisfaction to increase retention. Don't be afraid to continuously advertise.
There are three different types of expenses:
- Controllable
- Uncontrollable
- Reserves & Replacements
Controllable expenses are just that-controllable. These expenses include property management, maintenance, advertising, and the like. Basically it means that if things go horribly wrong, you can control these expenses. The next category, uncontrollable expense, means that you cannot eliminate the cost of operating the property. That doesn't necessarily mean you can't impact the cost, but you can't get rid of it. Examples of an uncontrollable expense are utilities, taxes and insurance. Reserves and replacements include capital costs to improve the property, such as roof and deck replacment.
The best way to minimize controllable expenses is to build a budget and then carefully analyze results each month. The main reason investors struggle with the expense is because they tend to "walk away" from the investment and rely on the management company to take care of everything. The best management companies in the country still count on their team to produce results. And whether we like it or not, people will disappoint us. If you catch it fast enough, controllable expenses are easy to control.
Don't let the title uncontrollable expense deceive you. You can still impact this expense, you just can't eliminate it. Encourage your management company to minimize uncontrollable expenses by installing low wattage light bulbs, electric timers and motion detectors for lights in common areas, water saving devices and regulated thermostats to reduce the hot water temperature.
Another way to increase cash flow when investing in apartments is to carefully consider your financing options. Sometimes it just makes sense to refinance to lower your interest rate. Many investors refinance to pull out equity to buy another property. Others simply look to decrease their interest rate and, by default, their mortgage payment. Both strategies can increase your bottom line dramatically.
One of the greatest benefits to deploying these profit building strategies for your investment is forced appreciation. Because apartment buildings are valued based on the current and future income they produce, when you increase income and decrease expense you increase the value of your apartment investment.
Wish you all the success,
Steve Steadele
About Steve:
Steve Steadele, author of the book Multifamily Millionaire, is a successful Real Estate Investor, Broker, Entrepreneur and self-made millionaire. He is a featured speaker at Real Estate Investment Associations across the country where he shares his wealth of knowledge, experience and enthusiasm for the real estate industry. Today Steve specializes in the acquisition and disposition of investment real estate throughout the United States. To learn more about his products and services, visit his Web site at www.SteveSteadele.com.
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