Multi-family properties are popular with investors for their potential to generate regular income. However, in a high-cost environment—where operating expenses are rising and conventional methods of boosting profitability are harder to achieve—investors need to get creative to increase their returns. Adding value to multi-family properties, especially those with long-standing tenants paying below-market rents, can significantly enhance revenue and property value.
The Impact of Rent-Controlled and Legacy Tenants on Revenue
Many multi-family properties have tenants who have been in place for years, sometimes decades, paying below-market rents. These legacy tenants can limit an investor’s ability to generate the full rental income potential of a property. In areas with rent control, this challenge is compounded by legal restrictions on how much rents can be increased annually.
However, this doesn’t mean investors are out of options. By focusing on property improvements and offering incentives to tenants, investors can add value in other ways. For example, upgrading common areas or individual units can justify higher rents, even in rent-controlled environments. Additionally, offering tenants incentives to move out, such as through a “cash-for-keys” agreement, can create turnover and allow the investor to bring rents up to market rate more quickly.
Strategies for Raising Rents
Investors and landlords must consistently ensure compliance with provincial tenant-protection regulations, as well as municipal bylaws and other rules. Each jurisdiction has its own rules regarding rent increases, eviction procedures, and tenant rights, and failing to adhere to them can result in legal and financial penalties. It’s crucial for landlords to stay informed about updates to these regulations to maintain lawful and fair rental practices, protect their investments, and avoid disputes with tenants.
Renovations
Renovating units is one of the most effective ways to increase rental income. Upgraded units can command significantly higher rents, especially if they bring the property up to the standards expected by today’s tenants. Investors should focus on improvements that offer the best return on investment, such as updating kitchens and bathrooms, installing energy-efficient appliances, or enhancing building security.
Investors need to be aware of tenant protection regulations. In British Columbia and Ontario, for example, landlords can evict tenants for renovations, but the work must be substantial enough to require the unit to be vacant. Minor upgrades like painting or replacing flooring don’t qualify; the renovations must involve major structural changes, health and safety improvements, or other significant work. In both provinces, landlords cannot legally evict tenants for minor repairs or cosmetic upgrades.
Cash-for-Keys Offers
In cases where rent-controlled tenants are unlikely to leave, investors may offer cash-for-keys deals. This involves offering tenants a cash incentive to vacate the unit voluntarily, allowing the investor to raise the rent-to-market rates for new tenants. While cash-for-keys agreements can be costly upfront, the long-term revenue gain from securing market-rate rents often makes this strategy worthwhile.
Best Practices for Managing Tenant Turnover
Tenant turnover can be both a challenge and an opportunity for multi-family property owners. On the one hand, it allows investors to raise rents and improve units, but on the other hand, it can result in lost income during vacancy periods. Successful property owners manage this process carefully by minimizing downtime between tenants and preparing for turnover in advance.
It’s essential to have a well-organized property management strategy in place. This includes keeping units in good condition, responding quickly to maintenance requests, and fostering good relationships with tenants to reduce unnecessary turnover. When tenants do leave, having a streamlined process for renovating and re-leasing units can help ensure vacancies are filled quickly, keeping rental income flowing.
Professional Property Management
Successfully adding value to multi-family properties often requires more than just financial investment; it also demands expertise in property management. Professional property management services can make a significant difference in tenant satisfaction, turnover rates, and overall profitability, and can guide strategies to add value to properties, including recommending renovations.
Adding Value
When aiming to increase rental revenue in a high-cost environment, it’s essential for investors to focus on cost-effective upgrades that deliver a strong return on investment (ROI). Thoughtful improvements can help boost property value and justify higher rents. Again, landlords need to be aware of provincial regulations regarding evicting tenants for renovations.
Targeted Unit Renovations
Renovating units is one of the most direct ways to increase rents, but investors should focus on improvements that offer the best value for money. Cost-effective updates that appeal to tenants while keeping expenditures in check are crucial to improving ROI.
Kitchen and bathroom upgrades typically offer the highest return. Investing in energy-efficient appliances can also attract tenants while lowering utility costs.
Common Area Enhancements
Improving common areas can increase the overall attractiveness of a property and justify higher rents, especially in multi-family buildings where tenants value shared spaces. Enhancements in these areas can also help retain long-term tenants.
Installing energy-efficient lighting, security cameras, and access control systems can improve both the safety and aesthetic appeal of the building. Security improvements, in particular, can be a strong selling point and make tenants willing to pay more.
If the property has outdoor space, consider landscaping or adding seating areas to create a more welcoming environment. This can enhance tenant satisfaction and increase the perceived value of the property without major capital investment.
Energy Efficiency Upgrades
Energy-efficient buildings appeal to tenants due to lower utility bills and eco-friendly living, which can also provide a marketing advantage.
Improving insulation and upgrading to energy-efficient windows can reduce heating and cooling costs for tenants, making the property more attractive while also saving on long-term maintenance expenses. Installing low-flow toilets, faucets, and showerheads not only reduces water consumption, benefiting the environment, but also cuts down on utility costs for tenants. Through a larger initial investment, solar energy can significantly reduce common area utility costs and appeal to environmentally conscious tenants, increasing both rentability and long-term returns.
Amenity Upgrades
Adding or improving amenities can enhance the desirability of a multi-family property and justify rent increases.
If units do not already include in-suite laundry, installing coin-operated or card-based laundry facilities in common areas can generate additional revenue while being a valued amenity for tenants. Alternatively, adding them into units increases their desirability and the potential rent that they can earn. If space permits, consider adding or upgrading a small fitness center or recreational area that caters to your typical target demographic.
Technology Enhancements
Modern tenants increasingly expect tech-friendly living spaces, so incorporating technological upgrades can make units more attractive, especially for younger renters.
Installing smart thermostats, keyless entry systems, or integrated lighting controls can attract tech-savvy tenants willing to pay higher rents for convenience and energy savings. Offering high-speed internet as an amenity or ensuring units are fibre-optic-ready can appeal to tenants, particularly in urban markets where connectivity is a priority.
Cost Effectiveness
In a high-cost environment, investors must remain mindful of rising renovation costs while strategically planning upgrades to ensure long-term success. Although expenses can be challenging, focusing on cost-effective improvements with strong ROI can significantly boost property value and rental income. By adding value through targeted renovations and improvements, investors can enhance the desirability of their multi-family properties to increase revenue, even in a high-cost environment.
Simeon Papailias is a leading finance expert and influential figure in the industry. Known for his extensive connections and respected insights, Simeon stands out as one of the top professionals in the nation, offering valuable market knowledge and straightforward advice. Beyond his role as a Commercial and Investment Broker, Simeon is a dedicated advocate for the real estate sector and a passionate entrepreneur committed to guiding others toward their goals and purpose.
As part of its response to Canada’s ongoing housing challenges, the federal government has added another 12 new properties to the Canada Public Land Bank,...
As part of its response to Canada’s ongoing housing challenges, the federal government has added another 12 new properties to the Canada Public Land Bank,...
