The real estate market is constantly fluctuating. While 2021 provides many good opportunities for real estate investment, a savvy investor is ready no matter the market condition. If you’re just getting started in real estate investing, understanding the sources of investment returns is as important as being aware of the economic trends.
One way to make money in apartment real estate investing is through income and price appreciation. The latter can happen in two ways. With natural appreciation, the value of your investment increases due to uncontrollable market factors. On the other hand, forced appreciation allows you to proactively increase the investment property’s value.
Read on to know more about increasing the value of a property through forced appreciation.
How Does Forced Appreciation Work?
Like natural appreciation, using forced appreciation can increase the value of your property. However, the goal of forced appreciation also includes increasing the property’s net operating income (NOI) or its profitability.
In forced appreciation, there are two ways you can improve the profitability of your investment property.
Increasing the Income
You can increase the income you get from investment property by doing the following:
- Raise Monthly Rent: When updating your rent price, make sure that the amount is reasonable. It’s best to use the rent prices of your competitors as a guide, and be wary of overcharging.
- Reduce Vacancy Rates: Retaining your best tenants is one of the easiest ways to keep vacancy rates low. You can do this by providing facilities that make a long-term lease a practical and attractive choice, such as paid utilities, laundry facilities, and updated appliances. To attract new tenants, consider advertising online and offering virtual tours.
- Allow Short Term Rentals: While renting out a unit for shorter periods can mean a lot of work for property managers, it can also mean a significant increase in income. There’s a high demand for short-term rentals (STRs), especially in vacation areas. Generally, STRs command higher rents. What’s more, STRs allow for more flexible pricing—you can adjust the rent further depending on demand.
Cutting down maintenance costs and other expenses is another way to increase your property investment’s NOI. You can:
- Reduce Energy Use: Adopting measures for energy efficiency, such as using LED bulbs and installing insulation, can help reduce your operating expenses. Based on data from Energy Star, commercial buildings that use energy-efficient products save 35% more energy.
- Control Water Usage: Regulating the water usage in your property is also essential. You can do this by calibrating the toilet flow to reduce unnecessary water waste. You can save up to 10% in monthly bills if you fix a small leak.
- Do Proactive Maintenance: Fixing minor problems and performing regular maintenance is much less costly than waiting until your property needs repairs. For instance, it’s better to spend $100 on a replacement pipe than $20,000 to fix flooring damage caused by a leaking pipe.
What’s The Role of Syndicators in Forced Appreciation?
As discussed, there are several ways to force appreciation on your property. However, it can be risky if you are a first-time investor.
Also, forcing appreciation involves a lot of work, such as updating rent prices and marketing to prospective tenants. You also need to have enough resources to finance property improvement projects.
Partnering with multiple individuals through real estate syndication will enable you to invest in large real estate projects and earn more profit without too much effort.
Typically, it’s the syndicator who identifies investment opportunities and oversees the property. Working with a syndication firm will help you maximize forced appreciation because of the following reasons:
- They can assess what kind of improvements will increase the property’s value.
- They know how to set the right rent price without losing both the tenants and profits.
- They are knowledgeable about the local estate market.
- They will do all the work while you passively invest and collect the returns on your investment.
Get Significant Returns on Your Apartment Investment
Owning a property is among the smartest investments you can make. To minimize risk, seek the