There is a cash flow difference between a well cared for property and a poorly cared for property:

About 10 years ago, we had the opportunity to make a special pitch to an owner of a 50 unit apartment property.  The property was in a great location, but had become threadbare and worn out.  The owner’s income could not keep up with the expenses and due to the condition of the property the rents were significantly below market.  We met with the owner and suggested that he invest $50,000 in to the property, in paint, asphalt and roofing repairs.  He did not have the money and had to borrow it to get the job done.  Once the work was completed, we were able to increase the rents by $100 per unit and get rid of marginal tenants.  As we improved the tenant profile, we were also able to improve the property’s cash flow.

More importantly, we generated enough cash flow to pay back the line and send the client $2000 a month.  He did not had a client draw in years.  In addition, there was enough cash flow for us to improve the interior of the units, one apartment at a time.

Important Caveat

We were able to do this for this client because the property was in a great location, in the heart of the inner south east Portland.  Even with the rent increases, the rents were affordable.  This same result is not always possible in a location that does not have significant renter demand. Even more challenging is a property located in an area with significant crime issues and a financially weak tenant base.

Curb Appeal

Curb appeal is critical to all properties. To get a quality tenant, you need to have a quality property.  It does not need to be new.  But it needs to be clean and feel like new. 

I toured a property this week with a client in a tough part of Portland. We knew that in advance, but the deal seemed good, and my client was considering taking a risk.  So we went to look.  The aerial pictures looked good and the building looked nice from a distance. As we got closer, we found out that the paint was peeling, the new windows installed wrong and the decks were rotting. We turned around and walked away.

Had the seller taken the time to make sure that the property was continually and correctly improved, he might have had a deal, or at least an offer (all cash offer at that).

Summary

In summary, the best strategy is to continue making improvements at your property.  Do regular inspections and as items show up, do the work.  It is easier to do the work while a property is full and there is cash flow coming in then do it at the time of vacancy and short cash.

In the long run all properties are judged by their looks, just as we judge people. The key to a successful long term investment is to have a property looking good, inside and out.