Having not written anything in a while on the subject, I will recount a conversation that I had today with the Guru about various things multifamily real estate. The subject that I broached was how to handle a property that is underperforming – for example, one suffering from huge vacancies. Of course, you could be dealing with a macro/market phenomenon of over-supply in the particular area. But, if that’s not the problem…
The answer really depends on what kind of budget you’re working with. If you have some capital to invest, improvements (like a new gym or apartment upgrades) can be the type of thing to re-position the asset and to improve its relative standing. But, what if you have no money in the budget? Well, then, the obvious answer is to start lowering rents. If there’s a mortgage, though, the lender may hold back some proceeds contingent on achieving certain occupancy levels, yet also have covenants in place on how much the rent can actually be lowered to achieve that goal. Which is when you need to get creative – perhaps include electric in the rent. In the end, while there is always a trade-off, sometimes you end up making money and increasing demand by lowering the sticker price.
As a final caveat and consideration, the Guru offered up a story from his long history in the business. When he was more involved in property management, he used to have a map prepared of the various properties to see if vacancies at any of them were clustered. In one instance, there was a property where there was one building with much higher vacancy than the others at the location – a function of being the furthest away on the property from the parking lot. So, without a budget, what did he do? Invested a few thousand bucks in the landscaping for that building to give it a little sizzle – all the vacants were rented within a couple of days.
