ROI is the big ticket for investors. A high ROI means your multi-family building is successful, generating income, and is in the black. When it's low, it can be because of several things such as too many or pricey expenses. If your multi-family building's ROI is lower than you would like, there are ways to achieve a higher one.
A Plan Will Help You Increase Your ROI
An ROI plan should be created at the beginning of your buying process when you are considering a multi-family property. The reason for this is because the information that will make up your plan will be useful in seeing the bigger picture.
The first part of your ROI plan should be a comprehensive market analysis. In the market analysis, you'll learn details about the area you're debating and the competitors already there. It should include the size of the market and how many rentals are currently available in that area. It's critical to research the growth projections, too, to determine if you will have a large tenant pool to choose from. Market needs and trends shouldn't be glossed over either. These can reveal crucial tidbits like if home ownership is dropping, or how to make your multi-family investment the purple cow by offering amenities or incentives that your competitors aren't.
As for your competitors, a market analysis will reveal your direct and indirect competition. By listing specifics of other rental properties, such as the rent per month and the square feet per unit, you'll see how your building compares. You'll learn who your direct competition is, which will better position you to compete with them. See below for an example.
1102 Sample Address
2 BDR / 1 BA
$1,350 month / 1,000 SF
This property is most comparable to the multi-family building. Comparable #1 has 105 additional square feet and is $0.05 lower in monthly rent.
A SWOT Analysis Will Help You Make Strategic ROI Decisions
Once you've completed your market analysis, it's time for SWOT. This acronym stands for strengths, weaknesses, opportunities, and threats that are applied to the building, the market, and the investor. Many management companies fail to conduct research to address these terms for the property in the current market. However, they will help you create a strategic plan that will lay the groundwork for your management team. By establishing what the multi-family property has to offer, you and your management team will be better able to make informed business decisions that will lead to lower tenant turnover and a higher ROI.
No properties are alike so a SWOT analysis would be different for each one. Here are some examples of key points that would be included in this analysis. If your rental property is located in a growing neighborhood with access to schools, food, and shopping, this would be a strength. Another strength could be that upgrades were recently completed by a reputable contractor. If you are new to real estate investing and have limited experience, that would be considered a weakness. As for opportunities, one could be that your building is located in an area that has a low vacancy rate compared to the provincial average. However, a bad economy or a decline in the neighborhood would be threats.
Building a plan to increase the ROI of your multi-family building is a smart move. It will give you insight into the current market and the building, which will allow you to make strategic decisions to improve your return on investment. Conducting a market and SWOT analysis is imperative to your ROI plan.