But before rushing into making exterior investments, an owner must weigh them against potential returns. For example, it is often more cost-effective for an owner to simply keep the landscaping well-maintained and manicured, as opposed to planting all new vegetation or painting the entire exterior of a community. Each exterior improvement should be examined to determine if it will justify an increase in rent.

Finally, owners should consider improving common areas — particularly areas that are prone to resident interaction like swimming pools and fitness centers. Improvements made to common areas will have a direct effect on the residents’ quality of life and typically are likely to justify a rent increase.

5. Monitor the competition

Regardless of property improvements, property managers and owners should conduct ongoing monitoring of the property, its competitors and the market to identify rent fluctuations.

Managers also should monitor floor plans to identify which plans are in greatest demand in the marketplace. Once it is established that an individual floor plan is in demand, the manager can advise the owner to raise the rent for those specific units. In addition, rents may be raised based on the strength of an individual floor within a building. It is acceptable and expected for communities to raise rents based upon an individual floor plan’s strengths rather than raising rents across the entire community.

In addition to floor plans, property managers should monitor rival communities to identify ongoing rent trends. Because of market fluctuation, this competitive research can result in rents being raised and lowered on the same units in a short period of time. Any decisions based on a competitive analysis of the market will be tailored to each owner’s objectives. Some owners will want to focus on higher occupancy rates, while others will be focused on rent growth. These factors must be taken into consideration when making the decision to raise rents or not.

As a property type, multifamily demands more ongoing attention from owners, but there is excellent potential for substantial returns provided the community is managed correctly. Commercial mortgage brokers must familiarize themselves with property-management issues to ensure that their clients are taking over communities poised for success. Having the right management team in place is essential to implement strategies that ultimately drive up the property’s net operating income — and its cap rate as well. This improved bottom line will increase the property’s value in the eyes of potential lenders as clients seek financing in the future. 

Nick Alicastro is vice president of business development for Western National Property Management, an arm of Western National Group, which is one of the nation’s largest multifamily owners and developers. Alicastro is an expert in the acquisition, disposition, redevelopment and repositioning of multifamily properties across the western United States. He is a licensed broker in Nevada, a licensed salesperson in California, and a Housing Credit Certified Professional. Reach him at NAlicastro@wng.com.

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