As a commercial real estate broker with a focus in apartment investment sales based in Southern California, one of the markets with some of the highest barriers to entry in the nation, multifamily investors have to be more savvy in implementing strategies to increase cashflow when investing in apartments more now than ever. While demand to buy apartment buildings has increased in spite of being in a COVID environment, inventory has not, which means prices have not fallen as many investors may have hoped. Despite this, there are still strategies to that will allow investors to maximize their cashflow and to reposition their acquisitions as attractive places for tenants to live and potentially to sell at a profit.
STRATEGY ONE: IMPLENTING A COST SEGREGATION STUDY
Cost segregation is the process of identifying personal property assets that are grouped with real property assets and separating our personal assets for tax reporting purposes. The decreases the depreciation time allowed by the IRS from 27.5 years down to as low as five years, allowing investors to recapture their tax benefit in shorter time period. The study depreciates the not only the mechanical aspects of an apartment building but the non mechanical as well (carpet, flooring, lighting, cabinets, etc). The tax benefits can also be spread amongst multiple owners of a property.
STRATEGY TWO: RATIO UTILITY BILLING SYSTEM (RUBS):
Ratio Utility Billing, Or RUBS, is a system that divides utility bills among residents of a property based upon predetermined criteria. It is a viable option when submetering is either too expensive or cumbersome to install. As rent control measures limit investors in markets like as Long Angeles to raise rents to be align with the market immediately, RUBS allows investors to pass on the costs of utilities to tenants, lowering their operating costs. It also is an attractive selling point for apartment investors planning on repositioning their property after stabilizing the asset.
STRATEGY THREE: ADDING ACCESSORY DWELLING UNITS (ADUs):
ADU’s or granny flats, are a separate residence on the grounds of an existing home or apartment building. Due to the historic housing shortage in California, the state making it easier now than previously for property owners to build ADUs and if space permits a secondary junior ADU on the land for an existing property. There are several full service firms in Southern California that conduct feasibility studies, provide architectural plans, and construction for owners who want to add Accessory Dwelling Units to their properties. This allows investors to increase their cashflow to add up to two additional units to their existing properties.
STRATEGY FOUR: CPACE
CPACE, or Commercial Property Assessed Clean Energy, is a low cost financing option for commercial real estate owners looking to improve their property by adding energy efficient improvements (i.e. windows, heating, insulation, water service) allowing them to increase the value of their property while at the same time lowering their energy costs.
STRATEGY FIVE: ADDING WASHER AND DRYER UNITS:
Adding washer and dryer units can increase the rental value of an apartment unit by as much as ten percent as well as extend the time that a tenant lives in a unit. If water hookups (or lines are accessible) adding washer and dryer units are an investment to a unit whose cost can be recouped within a year of a tenant renting a unit. Units with washer and dryers in unit also retains tenants longer than those without as they are a convenience for the tenant living in the unit.