#7 Submetering! Making money with apartment buildings: A Tip from a Pro!Feb 28, 2019
If you're reading this post, it's very likely you've read or watched videos of previous posts of mine in which I talk about one my favourite reasons for investing in apartment buildings, that is the WEALTH MULTIPLIER EFFECT!.
You see, contrary to small rental properties containing one to fours units, for which the 'sales comparison' method is used to determine the value of the property, when you invest in larger apartment buildings of five or more units, the way the value of the asset is determined is called the 'income capitalization' approach, or 'cap rate' approach.
According to the cap rate valuation approach, the value of the property is arrived at by dividing the property's net operating income, or NOI, by your market's prevailing or average cap rate for comparable properties. To calculate the NOI, you subtract the property's operating expenses from the rental income.
The wealth multiplier effect, also sometimes called the 'big lift effect', kicks in whenever you increase your NOI by a dollar, the property appreciates by approximately $16. So you can only imagine how much the value of the property increases when you give, say a $50/month rent increase to your tenants. That does not happen with small rental properties (4 units or less), and that's why you can create more wealth by investing in apartment buildings and why I always remind my students NOI is your best friend.
As an apartment building investor, your job is always to maximize your NOI by maximizing income and reducing operating expenses to maximize the value of your property.
Over the years, I purchased two apartment buildings that had only one meter for electricity, and the suites were not individually metered for electricity. In other words, the tenants' rental charge included the cost of their power consumption. As a result, the tenants in that building were not motivated to reduce their power consumption, and it was costing me a lot more for power.
In order to maximize my NOI by reducing my electricity expenses, I had a company install electrical sub-meters to each suite in my property and the tenants after that had to pay for their electricity consumption. This, in turn, created a significant increase in the value of my property.
In this video, I interviewed the owner of the company that installed electrical sub-meters in my properties and discuss the benefits of installing those.
You might have also heard that I have a series of live 2.5-day workshops across the country. You might have heard that for the last two years since I have completely revamped the curriculum with the assistance of a professional digital consultant, my graduate students have consistently rated these workshops 9 out of 10!
You can watch video testimonials from my students on my website:
The dates for the workshops are as follows:
Vancouver / Langley: April 12-14, 2019
Edmonton: May 10 - 12, 2019
Hamilton: May 24 - 26, 2019
I'd love to see you there!
Please, keep in mind these workshops are small with 30 participants or so and accordingly they usually sell out. So make sure you secure your seat.
However, if you cannot make it, you can always take the course online.
To you becoming the master of your fate and the captain of your soul!