7 Ways to Make the Value of Your Investment Property Skyrocket!

Attention all income property owners:

Do you want to find ways to increase the cash flow of your investment property?

Are you looking for ways to cut expenses and bolster your bottom line?

Would you believe that following a few simple steps can dramatically increase the income you derive from your rental property, thereby substantially boosting its value?

Please read along for 7 very simple-to-follow steps that will guarantee increased rental income and overall value.

1. Make those tenants pay for parking!

Paid parking is one of the most lucrative and overlooked sources of additional rental income on an investment property. Particularly in urban centres, parking spots are hard to come by and tenants are willing to shell out big bucks to have a designated place to park each day. A good rule of thumb when determining how much to charge for parking is: determine the price for municipal on-street parking permits and double this (and this is just a starting point - in urban centres, you can often charge many times more than this).

2. Ongoing Improvements

Making steady, ongoing improvements to your rental property is a great way to ensure increased cash flow and a good tenant profile. Money should be targeted toward those items that will result in higher demand for the unit: kitchen appliances and flooring, bathroom fixtures. If you are making improvements that do not translate directly into higher cashflows, you will be damaging your cash flows and needlessly spending money. This strategy generally works best in areas with reasonable demand to begin with. You can improve a rental building in a low-demand area all you want, but it likely won't translate into greater profits.

An added benefit to this technique is that some new improvements (such as a new stainless steal refrigerator) will allow you to claim a depreciation tax credit, which will offset a portion of your income. Ask your accountant about the tax effects of larger purchases or improvements you are considering.

3. Use a Referral System to Decrease your Vacancy Rate:

Any investment property owner knows the devastating effect that vacancies can have on your bottom line. A creative way to decrease vacancy and tenant turnover at the same time is to institute a tenant referral system. There are many ways to do this, but a common system is to offer current tenants a "finder's fee" for referring tenants. Referring tenants would be paid a nominal sum (usually no more than 1/4 month's rent at most) - it's quite amazing that the actual amount of the "finder's fee" doesn't seem to have a significant effect; the presence of a "finder's fee" itself seems to act as a very strong incentive.

The tenant referral system will have two effects: 1) vacancies will decrease as you have found a creative way to locate new tenants; and 2) tenant turnover will decrease as tenants tend to remain in a rental unit longer when they have referred others to the same rental property.

4. Be NICE!

This is by far the easiest method to implement (for most of us!) Simply being kind to tenants will have a positive effect on the length of time they decide to continue to rent from you. This is not to say that you should be a pushover and allow tenants to run the show, but a simple kind word or thoughtful action will have a dramatic effect on your occupancy rate in the long run, which will in turn result in higher cash flow... and, that's right, higher property value.

5. Go Green

This point should be read with a disclaimer: some energy-efficient retrofits require renovating the entire building and others can put a large hole in your wallet!

On the other hand, strategic energy-efficient upgrades, which take advantage of government subsidies and tax incentives, while lowering operating costs, result in a more comfortable environment for tenants and allow you to advertise your income property as "green", are a fantastic way to increase your cash flow while taking advantage of the zeitgeist!

The Office of Energy Efficiency provides information on retrofit incentive programs: www.oee.nrcan.gc.ca

Canada Mortgage and Housing Corp also offers many incentives: www.cmhc.ca

6. Change of Use

If there are units at your investment property, which are difficult to lease up, consider changing the use. For example, the 1st floor of my apartment building was very difficult to lease to residential tenants, as many like the views and greater privacy afforded to units on higher floors. However, main floor spaces command a premium for commercial tenants. They want the exposure that a first floor space offers (especially if the building is in a busy location or the business expects to generate significant business from the residential tenants in the building).

It is important to note that municipal zoning by-laws and policies may not allow you to have any use on your property. Be sure to check with the municipality before you entertain any change of use.

7. Smaller is better..

Counterintuitive it may sound, but it is true. If you really want to squeeze out every last drop of cash flow from your property, consider slicing and dicing your property into as many smaller units as possible. Of course, you must keep in mind what tenants in the area are looking for in terms of size and quality, but a great revenue-generating strategy is often to break up an existing rental property into a greater number of smaller units.

Consider this example:

Mary has a 2-story house with a basement that she rents out to a couple with a baby for $1600 per month.

Mary could split her 2-storey house into 3 separate units by putting in 2 extra washrooms and kitchens, a wall so that there is a separate entrance to the second floor and a separate entrance to the basement, unless there already is one. In this case, let's assume she spent $30,000 completing the renovations, but is now able to charge the following rents:

Basement: $800 per month

1 bedroom main floor apartment: $1100 per month

2 bedroom second floor: $1400 per month

Total: $3300 per month --> that is $1700 per month ($20,400 annually) of increased rental revenue.

Therefore, it would take Mary less than a year and a half of increased rental revenue to pay for the renovations, after which time she would simply be putting the excess $20,400 per year into the bank.