the-abcs-of-real-estate-investing-ken LifeFeeling

all our investigation, we discovered three main areas that were ripe for better management
under new ownership:
1. Transportation: The existing residents wanted some sort of community transportation.
2. Apartment location: The seniors at this community didn’t like to climb stairs, so the
upstairs apartments were usually the ones that were vacant.
3. Cable and alarm: The property was locked into a bulk rate cable and alarm
agreement.
After doing our research in the surrounding area we found that we were one of the only
communities without a van to shuttle the residents around the community, to and from
appointments and special events. We found that our competition had transportation service
and had a much higher occupancy because the van service attracted seniors who didn’t want
to drive. With that knowledge, we budgeted $54,000 for a twenty-one-person van into our
operational projections. We have owned this property long enough to tell you that this
investment in the van has increased our rentals, occupancy, and cash flow and ultimately the
property value.
The second action we took in response to the three items in our plan related to pricing.
Clearly our residents valued the first-floor apartments more than the second-floor units, so
we priced them accordingly, making the first-floor rents slightly higher than the secondfloor
rents. Over time we were able to lease these first-floor apartments for $75 per month
higher than the second-floor apartments. We also increased the rent on the units that had
exceptionally good locations or outstanding views. This equated to over a $6,000-per-month
increase in our cash flow and the first-floor apartments are still 100 percent occupied!
Finally, in response to point three in our plan, we renegotiated the bulk cable and alarm
agreements. The existing agreements combined were about $21 per unit per month for all
182 apartments, regardless of whether or not the apartment was occupied. This equated to a
$3,822 per month savings. Better yet, the residents liked the new arrangement because for
the first time they could choose the cable plan they wanted, instead of being locked into a
plan negotiated by the absentee ownership eight years prior. The same went for alarm
service.
I know you’re thinking that, wow, it must be great to have all that extra income every
month from simply executing this plan, and you’re right, it absolutely is. But the benefit of
good operations goes one further. Remember from earlier in this book: The value of a multiunit
rental property is a function of operations. Well, the result of all this increased
operating income paid off just as we had planned: in a recent appraisal of $11.3 million,
over $2 million more than we paid for the property just one year ago. This is the power of
planning your success and using a good property management company that can, first,
identify new ways to increase the net operating income and that, second, has the experience
to help you make it happen. This in turn increases the value of the property and increases
the return to investors.
I can’t emphasize enough the importance of putting your property plan on paper and
then working your plan. It is not a complicated document. There’s no need to put it in a big
three-ring binder. As you can see, the property plan that yielded us thousands of dollars in
operating income and millions in appraised property value was a simple three-point plan.
The property plan is simply your goal for the property. And just as I stated earlier in this
book that you need to tell everyone you see and know about your own personal goal, you