I read a quote recently that I can’t quite shake. “Beware of little expenses; a small leak will sink a great ship” [1]. Often times I have to remind myself that our business model is to add value. Many think the value add strategy simply refers to a renovation. Some think once a property is renovated and achieving market rents, the job is complete. Yet operational efficiency can ADD just as much value.
In fact, one way to create a successful business is by adding value at every level. The easiest way to do this is by lowering expenses every year. Remember the old saying, there is no such thing as a free lunch? The city has no problem giving notice that water is increasing by 15%, or that garbage services are going up by 20% due to fuel and labor costs increasing. All these costs have to be paid, and these small fees add up. Before long, your NOI (net operating income) is so small your account is barely positive. We counter these increases through slight adjustments each year when signing new leases, helping investors stay positive and ahead of inflation. Other operational value add ideas are: offering covered parking, offering extra storage space, rent washers & dryers, offering an internet package, offering furnished spaces, etc. All of these conveniences can add to the bottom line because they all justify additional monthly income.
YOU PURCHASED A BUSINESS WHEN BUYING YOUR RENTAL PROPERTY
Perhaps the most important thing to stay mindful of is that you are operating a business with the sole purpose of providing a service in exchange for money. Our business provides stability and opportunities to: cleaning services, construction crews, dumpster services, pest control, legal, accounting, photographers, the list is endless. In exchange, we are able to ensure our residents always have comfortable, clean, safe places to live.
Running a business is not easy, but constantly adapt and your business will flourish.
SOURCES:
- Franklin, Benjamin. Poor Richard’s Almanac. New England, Benjamin Franklin, 1732.
