How to Stabilize Your Newly Acquired PropertyOct 17, 2023
Let’s say you’ve just completed the purchase of a new property. Congratulations, you’re an official real estate investor! Now, it’s time to stabilize your newly acquired property.
If you’ve been following our recommendations at WealthGenius, your investment should be a multifamily residential building. We’ve created several posts describing the benefits of multifamily investments. We highly recommend that you base your own investment strategy around the acquisition of multi-tenant properties.
But what does it mean to stabilize your newly acquired asset? What are the things you can do as a new property owner to make immediate improvements to the property value? Property stabilization is the next sequence in your journey to become a successful real estate investor.
What is property stabilization?
In real estate, property stabilization has two standard definitions. In the first case, it describes the optimal range of occupancy within your multifamily property, a minimum threshold of at least 80% occupancy.
In the second case, property stabilization means maximizing the value of the property by increasing operating income and reducing operating expenses. For the purposes of this edition, we’re going to focus on the second definition of property stabilization.
How to stabilize your newly acquired property?
So what are the ways you can improve property conditions and maximize value from your new acquisition? We recommend focusing on the following areas to transition a previously managed property into your method of operation.
Send an introductory letter to your tenants
First of all, you want to introduce yourself (as the property manager!) to the tenants living in your building. Remember, you just work there! Try to keep your persona as the owner anonymous. Keep the lines of communication open, but , at the same time, keep a professional barrier so that managing future tenant issues and challenges can be a little easier and safer. Send a friendly introduction letter to each of your tenants to help break the ice. You want your building to feel like a friendly community, so a personalized letter is a great way to walk the walk.
Make sure your letter explains how you will manage the property. Include appropriate phone numbers and other contact information so that tenants can reach the necessary people when needed. If you have a property manager, make sure they provide specific instructions about how calls will be responded to (ex. On call hours, holidays, etc.) with regards to damaged utilities and appliances, emergencies or tenant or building complaints. Be transparent to help people get comfortable with your new managerial style.
It also doesn’t hurt to include a welcome gift to each of your tenants. You can send a gift card, a gift basket, a bottle of wine, or any other offering with your introductory letter. Show your tenants that you want them to feel welcome and comfortable in their homes to help establish that shared sense of community. Gift cards around the holidays are also a great idea!
Update the tenant leases
As the new owner and property manager, tenants are renting units directly from you. Therefore, you need tenants to sign new leases that legalize your position as the property landlord.
Also, ask tenants to provide copies of their photo IDs when they sign the new leases. Verify that each tenant is who they claim to be so that each agreement is binding to the correct parties.
You should also include details about how rent will be paid to your new management. Some tenants might have paid in cash or hand-written cheques, and others may pay via e-transfer. Create a standardized process to accept rental payments, and include a clause within the lease about how those payments will be made. Keep in mind that although it is good to streamline processes to run your business, be cognizant that not everyone will be able to pay how you’d like. This may be due to banking restrictions (i.e. e-transfer limits, age - the elderly may find it simpler to use cheques versus technology, etc.), so being flexible, within reasonable limits, will go a long way in executing your leadership chops when it comes to tenant - management relationships.
Complete a new property inspection
Now, you might think to yourself, ‘I completed a property inspection when I bought the building.’ In your rush to complete the purchase, you may have overlooked some flawed details during the initial inspection. It happens, and you shouldn’t beat yourself up about it.
Simply conduct a new walkthrough now that you’re officially the owner of the building. Take time to thoroughly inspect items like the roof or the foundation. Hire a professional to give you an estimate on how much time will pass before you need to replace these big ticket items thereby allowing you to plan financially for future expenses.
Once you have that timeline, create a capital expenditure plan. Budget how much each item will cost, and when you need to complete the work. Then, create a financial plan so that you set aside money every month to prepare for these upcoming capital expenses.
Create a master key
Once you finalize the purchase, you’ll receive the keys to the building from the lawyers. However, it’s highly likely that many of these keys will no longer work. Locks will have changed over the years, and not all keys are properly replaced.
Make your life easier by hiring a keymaker to make one master key for the whole building. This one key will unlock every door on the property. It makes things much easier if you’re trying to fix problems in one of the common areas, or you need to enter a specific tenant’s apartment.
Clean, patch, and paint the building
Your second property inspection will be more thorough. Identify small chips in the paint or holes in the drywall. Make a list of all the areas that require attention and maintenance.
Gather supplies so you can clean, patch, and paint the building. These little touch-ups are relatively inexpensive, but they help improve the appearance of the building. Tenants will feel happier about their living conditions, and you’ll also increase the value of the property.
Inspect the firm alarms and smoke detectors
Safety is an important part of creating a warm and friendly community. Fire safety is of the utmost importance when it comes to protecting your tenants and your investment.
Inspect each of the fire alarms and smoke detectors throughout the building. Verify that each device is working correctly, and make note of the ones that do not. Replace the broken devices to help promote those feelings of safety.
Invest in property management software
Diligent recordkeeping is the best managerial tool in your arsenal. Document everything from your tenant’s leases to building repairs and projected capital expenditures.
A property management platform like TenantCloud is an excellent resource for any aspiring real estate investor. Use the platform to store all data related to the maintenance and upkeep of your properties. The platform will function as your single source of truth whenever decisions need to be made about how to improve your property.
Stabilize your new property and maximize income
Once you stabilize your newly acquired property, you can shift your focus back to the mindset of an investor. Look for opportunities to maximize property income and decrease operating expenses.
Determine what open space you have on the property. Then, ask reasonable questions like:
- Can you install new units that can be rented out?
- Is it possible to add new parking spaces?
- What value would an additional laundry space add?
Subsequently, you also want to decrease operating expenses on the property. To do so, inspect the building and determine:
- Would new furnaces help reduce the building’s gas bills?
- How much would energy efficient windows save on HVAC costs?
- Can new plumbing and energy retrofitted toilets save water costs?
Always have your investor’s cap on as you manage your newly acquired property. You never know what new ideas might add additional value.
If you’d like more information about how to stabilize your newly acquired property, and receive practical investment advice, join the ultimate real estate education platform. You’ll join a thriving community of like-minded investors from whom you can learn trade secrets to maximize your returns as an investor!
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