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By Altus Group | April 14, 2021

How does your own multi-family asset stack up to other properties, and where can it improve? Are you making decisions that improve your investment return?

While there’s no secret in how to create value in multi-family – reduce tenant turnover, minimize operating costs and maximize revenues – applying some simple (yet effective) strategies can help set your portfolio apart from the competition and position you for future success.

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How to measure your performance and improve your cash flow using four strategies to make the most of multi-family.

Four strategies for getting the most out of multi-family:

Strategy #1 – Evaluate your performance to uncover opportunities

Compared to competing properties, are your expenses in line or higher? How does your vacancy rate stack up? Digging into your data allows you to see which areas you can focus on to maximize value.

To start benchmarking yourself, here are a couple of your most important financial KPIs:

  • Cash Flow: The monthly rent per unit multiplied by the number of units gives you gross monthly cash flow; subtract expenses (including property tax) for actual cash flow. Your ability to increase cash flow by charging premium rent is dictated by the building quality, the unit condition and the amenities you offer.
  • NOI % of Revenue: Net Operating Income (all revenue from property minus operating expenses) expressed as a percentage of total revenue. While it’s best to compare your asset’s performance with “like” properties, the national average in the U.S. in November 2020 was 59.3%.

Then from an operational viewpoint, you will want to look at things like reputation & brand management, facility management, customer service and of course – your vacancy rate.

Gaining clarity on how you’re tracking today will help you uncover gaps in your performance, and ultimately – opportunities for maximizing your cash flows.

Getting the most from multi-family – How to optimize your cash flows

Strategy #2 – Analyze every expense and process to find savings (in dollars and time)

Leverage the information gained from your performance analysis (see Strategy #1) to identify the opportunities for expense savings and process optimization!

Here are some ideas for how to minimize operating costs:

  • “Decouple” costs from the building and allocate them proportionately to renters, where possible.
  • Outsource and centralize processes that are non-core to your business, such as accounting, procurement and IT. In the NMHC survey mentioned earlier, 74% of respondents said they outsource part of their IT functions.
  • Accept online payments to streamline financial reporting.

Building on that last idea, the easiest way to enhance your processes is by looking at how technology can support you – particularly in streamlining and standardizing, for example:

  • Online leasing applications. This is something prospects prefer. You can deliver by understanding the type of units most in demand. Offer online payments and e-signatures. Aim for a paperless transaction.
  • Enterprise Resource Planning (ERP) software can help you manage and analyze your business processes and back-office functions.
  • Other online technology, such as Artificial Intelligence (chat bots) and predictive analytics.

These should be enough to wrap your head around how optimizing expenses and processes can pay dividends on the bottom line, but whatever you do – do not compromise the resident experience!

Strategy #3 – Fine-tune your resident experience

People need a place to live, but they want to live in a place where their comfort matters to building managers who act promptly on any issues. Keeping turnover low directly affects your cash flow. So how are you and your building management team delivering the customer service that keeps renters renewing year after year?

Ultimately you want to match the prospect experience to your resident experience. Upfront, focus on things like e-signing of leases, the option to pay a deposit by credit card, great-looking amenities, and something as small as a personalized follow-up from your onsite team. Once secured, keep that tenant engaged with online rent payments, a fancy communication portal and a third-party service for accepting packages.

Stay on top of what residents are looking for.  Pre-pandemic fitness facilities were top-of-mind, but now many are less interested in communal areas.

Investing where it counts will ensure your cash flows stay in check.

Getting the most from multi-family – How to optimize your cash flows

Strategy #4 – Future-proof your assets

And lastly, but most importantly – you need to ensure that long-term value for your multi-family portfolio.

You’ll want to be benchmarking your properties at regular intervals (quarterly, annually) and asking yourself questions like:

  • Does my expected rent growth align with my competitors?
  • Are the returns for this property too low compared to similar quality assets?

And after that, focus on forecasting your financial position for the next year, two years and five years.

Important questions to ask during this process are:

  • What does my property’s cash flow look like over the next three years if I maintain the status quo?
  • How will a new property opening nearby in 2022 affect cash flow in the future?

The more you understand your current situation and what you project the future to be like – the better off you should be.  As they say – by failing to prepare, you are preparing to fail.

Work your way through these and you’ll be on the right track minimize vacancies and maximize revenue.  It all adds up to maximizing cash flow and ultimately, the value of your portfolio.

Gain greater visibility into your portfolio performance and get deeper insight on where to invest for the greatest return.

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