As multifamily property owners, property managers should be proactive in creating the collateral needed to generate leads and increase the bottom line. Multifamily-owned properties are a great target for this. Leasing these investment properties does not only create cash flow and a need for contractors, but tenants within them bring stability to the property and add additional value. But, one of the biggest challenges has always been the cost of advertising effectively in today’s marketplace. Below are a few tips to keep in mind when creating a marketing budget for a property.
What is the ROI?
Try to calculate the return on investment to assist in determining the budget. This is calculated by comparing the ROI of similar properties of the same occupancy. Typically, the ROI is determined by adding another 50 basis points to the comparable properties and dividing this number by the capitalization rate. Then, this number is multiplied by 100 to get the total return on investments of the collateral. Then, this is divided by the investment capitalization rate to determine the annual ROI. The result will provide the return on investment of the property.
The next step is to determine the location and the return on investment which should be applied to this location. Some property owners feel the need to compete for properties in the same market index. However, this can be a costly venture, evaluating all features, benefits, and in the case of competing properties, parking, rent, operating costs, etc. As a result, owners should try to evaluate all costs to determine the ultimate return on investment.
Current Leasing Needs?
It may be counterproductive to assume that market rents will be in line with competitive markets because in many cases, demand for the property increases as the vacancy rate decreases. That means as vacancy rates drop, the market rents increase, and that’s good! If a property owner fails to adjust their costs accordingly, this could be counterproductive, because while they may grow, rent prices could also increase. When evaluating potential tenants, it could also be a detriment for the property owner to keep rents low while the market demands they be higher. This can be a dilemma for the property owner, as they may not be able to lease the property to a tenant who is at or near to asking price.
If a property owner ultimately owns a multifamily investment which they intend to retain, and lease, then there should be two other issues to consider. The first is the return on investment that will be required. If the rental property provides an ROI of 1 percent per year, then it would be a good property to hold, simply for the fact that the $1 invested will be comped to more than $10,000. And, the $1 per year rental return is fully realized by the owner in the form of an ROI of $10,000.
Brands, likes, dislikes, or preferences?
One of the same shortcomings is deciding what brand, type, or classification of tenant you are seeking to lease. Is the property you are marketing to a corporate client, an executive, a business school tenant, etc? And, how will you slate out the property to brand the property without affecting the current layout? Will the new layout accommodate the property, the building, and the services? Will you lose the tenant because the new layout will be less than suitable for the particular tenant, also, having the costs resulting from the rent credits generated by the layout?
So no matter what you decide to do, we always maintain the power and earning potential that exists with multifamily homes. This is especially true to you take these few managing suggestions to improve your perspective with these investment properties and their profitability.