How to increase the value on a 10 unit apartment from $400K to $1.5M

10 Unit Apartment -

Buy for $400,000     
Sell for $1,500,000!

Do you want to make a property go up in value quick? Experienced investors know the tricks. Find a higher and better use for the property by buying residential and turning it into commercial.

"The strategy is time tested and still a good bet"

An apartment building is valued based upon it’s rental income. The higher the income the more the value. Obvious.

The better question is, how do you increase rents so you have a more valuable investment?

The traditional Robert Allen, ‘Nothing Down’ strategy is to buy a fixer-upper, put in the least you can, usually at least paint and carpet, and flip it for big bucks. The strategy is time tested and still a good bet in today’s market. Unfortunately, there are a lot of guys who want to be the next Albert Lowry, make a million in real estate guy. Competition drives up prices, the deals get harder to find.

If you can look at the property with a different profit making strategy perhaps you will see something the last guy who considered the investment missed. What if you increase value by increasing the highest and best use?

"The part you might want to change is how it is used for housing"

For example, what if you find a small complex and change the use altogether? Well almost altogether. The apartment is already built out as housing. Let’s leave that part the same.

The part you might want to change is how it is used for housing. Instead of renting the apartments to long term residents, why not rent them to short term travelers and those tenants who are in transition between homes?

For example, let’s take a small apartment complex that has a poor location. The city has grown up around it, highways have been built nearby and it is likely located on a busy street. You can buy the dump for a song because no one wants to rent there. Newer properties in quieter neighborhoods are more attractive to raising families.  Your tenant base consists of poor people who frequently can't pay their rent and move from one apartment to the next every few months.

Perhaps you pay top buck, 10X gross rents. Because the rents are low, top buck isn’t so bad!

Now go in with your renovator’s hat. This property will likely need a complete makeover in order to suit the new use.  You are going to spend a pretty penny, all with the idea of making a pretty dime. When you are finished you will have new countertops, probably cupboards, new carpet, tile floors anywhere you can stick them, new sinks in the bathrooms and maybe even a modern looking exterior. Of course, you will install wireless internet along with a "business center" and put in a modern hot tub with landscaping.  Business travelers love to soak between jaunts.

"The busy street turns into an asset"

Now stick out your for rent sign. Instead of asking $400 a month for a dingy one bedroom you ask $50.00 a day plus tax from a higher end clientele. The minimum stay is 5 days.  That is $250 for one week, more than half of the rent the old tenant base paid over an an entire month! 

Your new market is the transitional tenant who is between houses or who is here for a few months on business.  The busy street turns into an asset. You are easier to find and your “guests” can find their way around a strange city starting from a well known boulevard.  

Your slum property has turned out to be a cash flow machine! Instead of getting $400 a month per unit you now get $1,500.00. The last landlord barely made his payment with $4,000 scheduled income.  Now you get $15,000 scheduled income! 

That is plenty of dough to pay the extra costs of maintenance. You now have to clean units at least every two weeks instead of once every three months, since the occupancy time with the last class of tenants, mostly after evictions, was about three months. There is not as much work to do when the units flip, though.  First, you have a clientele that takes better care of your units. Second, the units are in renovated shape to start with.

"A 10 unit complex that was worth $400,000

is now worth about $1,500,000.00"

To be sure, the strategy can take a good nest egg to get off to a good start. There may be zoning issues to tend with, although if most of your units are leased to “extended stay” tenants over 30 days there is not much most cities can do.

There is a lot more management involved. Someone has to answer the phone, show the units, book the clients, schedule cleaning.  However, considering you have increased cash flow by 300% the strategy may be well worth it.

Put the pencil to the paper. A 10 unit complex that was worth $400,000 is now worth about $1,500,000.00. If it takes you a year to get it done you have made a pretty good profit!  Now do it again except bigger, or find someone who wants cash flow in place, take $500,000 as a down-payment, collect $10,000 a month and get onto your sailboat headed for the caribbean.

This is the strategy for trippling cash flow.  If you want the details and how-to, the legal secrets, buy my  "Guide to making a million bucks changing apartments into extended extended stay rental units."   I will also consult with you one on one for a reasonable fee.