Multi Family Investment Properties... Look In The Laundry Room To Increase The Value
How I Increased The Value Of My Apartment Building By $83,333
Laundry income from a multi family investment property can vary widely based on a number of factors.
In my experience as someone who has owned many apartment buildings is that the suite mix in a building plays a major role in laundry machine income. The greater the number of larger suites (2 and 3 bedrooms as opposed to bachelors/studios) that you have in an apartment complex, the more laundry income you will generate per suite.
Somewhat related to this is the makeup of your tenant base. At one point I owned two multi family investment properties that were located within a few blocks of each other. One was much larger than the other, but the suite mix on a percentage basis was quite similar. The larger building catered to a lot of families while in the smaller building the tenant base was mainly singles and couples with no kids.
In the larger building my laundry income per suite was typically in the $350/suite per annum range. In the smaller apartment building the annual income was roughly half that. The discrepancy was likely due to the presence of the kids.
So are there ways to increase laundry income and hence the value of a multi family investment property? I believe so. This would be especially true if you were purchasing a building that has had management and upkeep problems. Here is an experience that I once had where making changes to the laundry facilities increased the value of the building by $83,333.
In my previous example I referred to a larger building that I once owned (and just recently sold) that generated approximately $350/suite per year in laundry income. Now, when I first purchased that building the laundry income was about half of that amount. Why? A few reasons.
This particular building had major management and owner problems. (By the way these are the diamonds in the rough you should be looking for as they can yield tremendous profits.) The laundry facilities reflected the overall neglect that was taking place. The coin laundry machines came with the building when I purchased it (as opposed to some properties where the commercial laundry machines are owned by a third party, who then pays the building owner a percentage of the gross income from the coin laundry machines). They were old and after speaking to the tenants did not work well at all. In fact, many of the tenants were actually taking their laundry off the premises to clean! So I did what I love to do. I ran the numbers.
I figured that to replace the machines would cost about $500 times 16 machines equals about $8,000 (there were two laundry rooms in that particular investment property each with four coin operated washers and four coin operated dryers). There were 45 residential suites in the apartment building section. The new machines were set up to charge 50 cents more per load than the old machines. I figured that this would not be a problem with the existing tenants as the machines were brand new and worked great. I also made sure that the laundry rooms were freshly painted and received some new, clean flooring. Nobody wants to "clean" their clothes in a "dirty" laundry room.
My educated guess of how long it would take me to recoup my investment in terms of cash flow was a couple of years. (I knew that my investment would be recouped almost immediately based on the increased building value)
I was wrong.
It took me about one year. In the process I had increased the cash flow in my multi family investment by $7,500 per year, and increased the value of the property by $83,333 using a 9% capitalization rate.
If this little example has piqued your curiosity about investing in multi-family commercial properties that's great! But what's your next step going to be? What I recommend is that you start with picking up a good resource on apartment investing. Here is one that I recommend. It is under $100 and will provide you with a solid foundation of knowledge.
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