But for the most part, a lot of the sellers that I work with end up having owned that property for a good amount of time, you may have owned it, I don’t know, decades, 30 to 40 years, you’ve paid off the mortgage, and you might even have tenants that have lived there in your property for years and years. What typically happens in that sort of situation is those rents have not been kept up to date with the market. So that’s fine, no worries there. I know that a lot of owners don’t like to create turnover in their buildings, so they’ll keep rents on purpose a little bit low. And that’s fine up until when you want to sell it. If you’re trying to maximize the price of your property, which you probably are when you’re selling it, then you want to go ahead and make sure to bump those rents up.
Now, what I would recommend when you’re doing that is you don’t need to crank the rent so high that those existing tenants look around, they look at their apartment and they say, “Okay, I could get a better apartment in this neighborhood for either the same price or less.” So you want to be careful when you’re raising those rents. Raise them up enough to where they’re just below market rates for the condition of the apartment that they are living in. That’s the way you’ll keep the tenants in place. Because when they look around to see what else is available, they’re not going to be able to find something that beats the price. But bumping those rents is item number one on the list for maximizing the value of your apartment building.
Okay, number two. Since we are trying to increase the overall income produced by a multi-family apartment building in order to maximize its value, you want to go ahead and look at all of your expenses in detail. So before listing a property for sale, it’s a great idea to really evaluate some of the contracts that you have in place. Now, as an apartment building owner, you’ve probably got a trash contract, a janitorial contract, a pool service contract, landscaping contracts, all of those recurring bills. Whether there’s an actual contract in place or not, if those are recurring expenses on a monthly basis or a quarterly basis, those are great items to look at in more detail and see if you can negotiate a discount, reduced rate, or whatever.
You also want to keep an eye on some of your other expenses like your repairs, et cetera, and obviously your water bill. If you’ve been noticing a very high water bill, you want to take a look at that, figure out what’s going on, and probably resolve that issue before you put a property on the market. But the overall idea is increase your rents and reduce your expenses. So before listing for sale, go ahead and renegotiate some of your contracts. If you need help with that, get an expert or a property management professional who’s used to doing that. We can certainly help you there.
All right, item number five on the list is to get organized. Here’s the deal folks, when somebody goes under contract to purchase your property, they’re going to request a bunch of stuff from you. They’re going to ask for copies of your bills, copies of your insurance policy and coverage amounts, copies of any service contracts you have, the title company or attorney is going to want probably a copy of your mortgage statement to get a pay off, all of these things. So if you’re not already well-organized for that stuff, then go ahead and get all of that together.
Now, the other thing and the reason you want to do this, the second reason you want to do this is that if your property is being marketed well, then there’s going to be a marketing packet that is provided to prospective buyers. That marketing packet will have in it your current financials, basically how the property is operating today, and it may include a pro forma operating statement, basically how this property could operate if it was running at peak performance. Now, on the expense side, you want to be able to provide evidence that the expenses you’re showing on that marketing packet are the true expenses, you can’t just make this stuff up.
Now, plenty of brokers and plenty of sellers do that, they put together some numbers and make up expenses that are actually lower than what’s really there. But that does no benefit to you because what happens is you end up under contract with a buyer, they start asking for documentation to prove your expenses, and then you can’t provide it. So you want to be able to provide documentation for everything. And again, that’s why step number two in this video was to go ahead and get your expenses in line, reduce those expenses, and then get some operating history for the property so then you can get organized and provide documentation for this. So these steps all work together to make a successful sale and maximize the value of your property.