Repairs - should you fix all that stuff you've been putting off for years?
It depends. Investors are people too and are often swayed by nice fixtures and good staging. Although a lot of this is a subconscious reaction, there is also a practical component. Properties that look like they've been cared for seem like they will need less maintenance in the short term. That means the investor will have some time to collect rents before things start going wrong and he or she has to start investing in repairs.
Certainly fix any little, cosmetic issues like water stains, holes in walls, those types of inexpensive issues. Before making any major renovations, talk to a realtor who can help guide you to the changes that will make the biggest positive impact on buyers. In general, as your goal in selling is to make money, you want to limit the investment that you make in preparing your home for market while maximizing the sale price.
Tenants:
- What about leases?
If your tenants have leases, raise rents when they come up for renewal as much as the market will bear. Tenants paying current market rate should be locked into one-year leases whenever possible where tenants who are underpaying would ideally be tenants-at-will.
- If someone moves out, should you leave the unit vacant?
That depends on the profile of your building. If it's the type of place where the new owner would want to live or convert to condos, leaving a unit vacant is not a bad idea. If not, rent it for as much as possible. If you're not sure, accept new tenants as a tenants-at-will.
What else should you know?
In General, to get the best price for your multi, think about the bottom line - the Cap Rate - of the property. Prospective buyers will use the Cap Rate to compare your property with others. Increasing your Cap Rate now will make your multi compare more favorably to others when you sell it.
There are two ways to increase your Cap Rate: You can raise income and/or lower expenses. We've talked about increasing rents. Does your building have any other ways of making revenue? Maybe you can rent parking spaces. Some owners have built lockable storage spaces in the basement that they rent to tenants. Be creative, every little bit helps!
If you don't already have a spreadsheet of expenses, take the time to do one now. Your accountant will love you and so will your real estate agent! Look at the list and see if there are ways that you can reduce expenses.
If you're currently paying for heat, consider installing a new, more efficient heating system or even breaking up the zones so that each tenant can pay his or her own heating bill. You may also be able to reduce water bills this way. Many cities promote the installation of separate water meters for each unit believing, correctly, that people who pay for their own utilities tend to conserve more.
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