Ever wonder what value-add projects are typically funded as part of a multifamily syndication opportunity? Read on to learn about the most common improvements done and why!
First, what do we mean when we say “value-add” projects? These are projects included in the business plan to increase the property’s overall value and cash-flow potential. The specific projects can vary depending on the property’s condition and market, but all strive to make it better.
Some common value-add strategies in multifamily syndications include:
Interior Unit Upgrades
Many multifamily properties have a shared laundry room. However, tenants love the convenience and privacy of having a washer and dryer available in their unit. Such upgrades add significant value.
Kitchens are often a centerpiece of one’s home, and can be given a modern make-over, converting boxed-in designs to open layouts with updated appliances, marble or granite countertops, new tiling and updated cabinets.
Flooring for the entire unit is often a common area of focus for improvement. New carpet and/or wood flooring have a major impact on the overall appearance.
Finally, walls are typically painted to a neutral color that helps increase the light-value within the rooms and general aesthetics.
Exterior Unit Upgrades
We all want the place we live to be beautiful and appealing to look at, especially when we spend time in those spaces and invite friends and family to visit!
Landscaping can drastically alter the overall appearance of the grounds, and in some cases provide opportunities to reduce the operating expenses. For example, improved irrigation systems or laying down rock instead of grass can reduce water costs and ongoing maintenance.
Signage is almost always updated as part of a multifamily investment project. The new sign may also be accompanied by an updated name for the property. The sign is important to be attractive to draw the interest of prospective tenants to help raise and maintain the occupancy rates.
Recreational Areas
Multifamily properties benefit from common areas available for recreational activities. In some cases, updating or adding a dog park. For others, a playground for kids to enjoy. Many have an indoor game room that may need attention.
When there is a pool, the liner and decking can be updated, along with new patio furniture to make the space feel more like a private resort.
Social Events and Community Activities
Not all improvements are measured in monetary values. The property management company also needs funding to host social events for the tenants, offering opportunities to bring everyone together to be appreciated and strengthen their sense of community. For example, hosting a pool party that provides snacks, drinks and music!
When people are recognized and have events happening right outside their door, they understand the value of where they live and want to stay longer as a result.
How and When are Value-Add Projects Completed?
Interior improvements can be performed on any target units that are already vacant, or when a lease is up and a tenant moves out. Often times, after units are upgraded, existing tenants want to move into the renovated space and are willing to pay an increased monthly rent. That transition frees up another unit that can then be updated as part of the business plan.
Exterior improvements can begin immediately and do not disrupt anyone’s ability to live there. It also provides immediate evidence to the tenants about the commitment to make their homes beautiful and more enjoyable.
What About Fixing Issues? What About the Unknown?
The same as a single-family home, multifamily properties experience unexpected issues. Other times problems are identified during the underwriting phase by waking the property with general contractors.
When existing problems are identified, they can be accounted for in the budget and syndication process.
For the unknown issues, the budget includes a capital reserve that is kept aside to cover the costs of issues such as roof leaks, boiler failures, and so on. This contingency fund helps cushion against such risks and avoids disrupting distributions to investors.
How Does All This Help As An Investor?
Your investments into a multifamily deal increase the quality of the lives of those who live there. In turn, the improvement projects elevate the market-value of the property in relation to the comparable properties around it. These efforts provide justification for increasing the rates for living there, which offset the operating expenses and position the property to generate cash flow.
Think about gaining passive income while also knowing you’re helping to improve the daily lives of others? Everyone needs a place to call home, and that place should be beautiful and enjoyable!