Increasing the revenue of your multifamily property does not always mean that you have to add an amenity or a service. Finding additional revenue can be as simple as increasing the rent or increasing the collections.
If you are looking at raising revenues on your multifamily property, there is a very simple formula that you can utilize to help you catalog your different methods of raising revenue.
Your formula for revenues is:
Rent rate x occupancy percentage x collection percentage + other income
This formula gives you your actual revenue. In order to determine your rent rate, you need to take the rent you charge and multiply it by the number of units in the building.
This is also known as your scheduled rent or your theoretical rent.
If you had 100% occupancy and all of your tenants were paying as scheduled, then that is your gross scheduled rent. You need to take this into consideration when you are looking at raising actual revenues.
In raising the revenues, you can raise the rent just as they are sometime by government subsidized rent programs. There are many government subsidized rent programs such as Section 8 housing. Other programs include housing for battered women, people with HIV and the homeless. Some programs pay more than others but it is a way to raise your rents.
You can also raise your rents through repositioning. When you buy a property and make improvements and repairs, you are repositioning. If you convert a Class D property into a Class C property, you are repositioning. This is a way to get more rent as well as increase the occupancy.
If you opt not to raise rent, then you can increase the collections on your existing tenants. Many people overlook this option and go straight to eviction of non-paying tenants. Try to work out a payment plan with the tenant. It is much better to have a payment plan than to evict them and have to go through the process of finding another tenant.
Eviction is a drawn out process. You can always start an eviction process and then stop it whenever you want to. Starting the eviction process can let a tenant know that you are serious about collecting payment. If you are able to come to terms on a payment plan, you can then terminate the eviction process.
So when you are evaluating your revenues and considering various ways to increase revenues with your multifamily property, be sure that you do not overlook the basics of raising rent or increasing collections. These are two simple yet cost-effective ways you can generate more revenue with your multifamily property.
You need to realize that when you are out raising money you are creating an investment product. Keeping that in mind, there are some rules that you have to adhere to. As you become more successful at closing deals and raising bigger monies, you come closer to limits set by the Securities and Exchange Commission.
You will need to consult with a securities attorney to get all your questions regarding this area answered but there are some things that are definite and others that are not.
It’s always smart to play well within “bounds” to avoid being called to task by the SEC.
Each state has its own regulations when dealing with its investors. Generally speaking, it is easier if all of your investors are located in one state. When you start crossing state boundaries, then you get into a grey area.
There are, however, key words to remember when you are getting into “out of bounds”:
General Soliciting: An example of this would be to run a radio ad in Los Angeles soliciting people to become investors in apartment projects. These would be people you don’t know, on a broad scale.
Where you get into trouble with this is when something goes wrong on a project and an investor files a complaint. If you had 10 disgruntled investors and they file a securities fraud complaint, then you have a problem.
This is where referrals are extremely important. Only work with people that you know or people that know you through a mutual contact. This way, you are staying within a defined group. You are working with people that you have a relationship with.
The biggest concern is when your investors are not active participants. It is more like a security when they are passive participants and don’t have a specific role.
Defined group: This group includes family, friends, colleagues, charity contacts, people from church, real estate club contacts, existing relationships, and referrals. If you really want to raise big money, join a charity and become a part of their fundraising drive and get in contact with the major contributors.
By becoming a part of a charity, you have created relationships. You are giving back and it’s a way to have access to private monies with a defined group of people who are most likely accredited.
The main thing to be aware of is that there are rules. Some of these rules fall under a grey area so it is always smart to stay within the defined areas. When in doubt, consult an attorney.
SECURE AND CONFIDENTIAL