Invest in Apartment Buildings: 6 Ways to Add Property Value

Value-add investing in apartment buildings is a multifamily investment strategy that produces more income for the investor. An effective value-added investment strategy improves your net operating income (NOI) by increasing monthly revenue or decreasing operating expenses.

Even if your goal as an investor is to generate steady streams of passive income, it behooves your investment to maintain some active role in developing your properties. Understand how to add property value, and you can implement growth strategies to drive up your investment's capital gains.

How do you calculate property value?

Measure the potential growth of your value-added property investments using the capitalization rate (CAP). Your CAP analyzes the degree of return on your investment based on the anticipated rental income of the property.

Suppose you invest in an apartment building at a purchase price of $2 million. In your first few months as the property owner, you determine your NOI is $200,000. To calculate your CAP rate, you take your NOI and divide it by the purchase price. Then, you multiply the difference by one hundred to get your CAP rate. In this example, your CAP rate is 10%.

The CAP rate indicates the value added to an invested apartment building with each additional dollar in NOI. Therefore, you can invert the CAP rate formula and calculate the future market value of your property based on how you manage the building.

If the CAP rate is at 10%, you’ll increase the value of your property by $10 for every additional dollar of NOI you can generate. Understanding the CAP rate incentivizes investments in strategic improvements to your property.

Six ways to add property value to your apartment buildings

Now that you’ve calculated the potential return from a higher property value, how should you make those investments? Here are six ways to stabilize your property and increase the value of your apartment buildings.

Consider installing modern technology

Understanding your CAP rate is one way to become more strategic with your investments. You also need to understand the demographics of your tenants.

If your tenant demographic is younger and more technologically savvy, they’re more likely to appreciate modern technology throughout the building. You can install systems for keyless fobs, smart thermostats, and even a program like Alexa to connect devices in each tenant’s unit.

Technology helps streamline modern living, so why not appeal to current consumer trends and attract more tenants that fit your target demographic? Make your building easier to live in, and you’ll help boost the value of your apartment investments.

Install new washers and dryers

Upon taking possession of your apartment building investment, you may discover that many appliances are past their prime. Specifically, if your building has washers and dryers in public spaces, it may be time to replace the older models with new ones.

Like investments in modern technology, new appliances simplify your tenants’ lives. Conduct a thorough inspection of every device in your apartment building, and create a plan to replace outdated appliances as needed.

In all likelihood, this will impact your NOI in the short term. However, you’ll effectively increase your property value over the long run.

Make improvements to tenant parking

Most apartment buildings offer designated parking spaces for tenants. After you purchase the building, evaluate how you can improve parking accommodations for your tenants.

Ask yourself these questions:

1. Is there a space available for every tenant in the building?
2. Are there spaces available for guests who visit tenants?
3. Do tenants require more than one parking space per unit?
4. Will tenants pay a premium for access to more convenient parking spaces?

These questions will help you determine the best parking improvements you can make. Be honest with yourself and your tenants about the objectives so that any changes to parking spaces are appropriate.

What about adding pet fees?

Most apartment building landlords allow tenants to have cats or dogs in their units. Therefore, it’s fiscally prudent that all tenants pay a small fee to own a pet in the building. Pet fees add a small but steady income stream to your property, boosting your total NOI.

What about move-in fees?

Like pet fees, move-in fees are a small but steady income stream. If you have low tenant vacancy rates — achievable with tenant turnover management — your income from move-in fees will be limited. Nevertheless, move-in fees are another option to increase your NOI and maximize your investment returns.

Can you add a fenced-in dog park?

Given how many tenants own pets, they need safe places to walk their dogs. Sure, they can use public dog parks in the community. But a private dog park on property grounds is much easier and more convenient for your tenants. It will also help reduce off-leash incidents that may occur in the community.

A fenced-in dog park may be the differentiator that elevates the value of your apartment building over similar properties in the neighbourhood. You can market your property as one of the most pet-friendly buildings in the community to attract more reliable paying tenants.

Learn more about maximizing investment returns in the fastest-growing real estate education community

When you invest in apartment buildings, you should immediately identify how to make improvements. No apartment building is perfect, and you can always increase the value of your property — if you know how to spot those opportunities.

Are you unsure how to spot potential increases in your property value? You can find inspiration from a community of like-minded investors in apartment buildings and multifamily properties. Join the fastest-growing real estate education community for steady streams of motivational encouragement.

You’ll network with fellow investors managing properties just like your own. Together, you can swap stories and share ideas on how to make improvements to your properties.

Most importantly, you’ll learn from highly successful property managers across Canada. You can also request to be mentored by one or more successful investors. A real estate mentor will help you make strategic investment decisions and avoid common mistakes new investors make early in their journeys.

Ready to capitalize on making investments in apartment buildings and multifamily properties? Join the WealthGenius real estate education community and elevate your dreams of success to new heights!