Are you trying to figure out a way to raise the rent on your commercial property? You can raise rents through a process called repositioning. Whenever you buy a commercial property and make improvements or repairs or convert a property from a Class D to a Class C or a Class C to a Class B, you are repositioning. There are three ways you can reposition your commercial property.
1. Cosmetic: You are likely to hear some vernacular in the industry like "putting lipstick on a pig". This refers to things like painting or landscaping and anything else that is non-structural in nature.
2. Complete Rehab and facelift: This option is more involved. You can place in all new appliances and new carpet on the uninhabited units and completely rehab it so some of the stuff looks new. The rehab does not necessarily change the class that the property is in. For instance, if you have a Class C property that was built in the 60's, it will still be a Class C after you rehab it.
3. Put new management in place: If you buy a distressed property that has a 70% occupancy rate and has an existing manager, the first thing you want to do is fire the manager because he probably has bad habits. If you are serious about what you are doing, you want to put new guidelines in place. Clean house and replace the property manager because that is the first step to raising rents and increasing the occupancy.
There might be a contract in place with the property manager but most have a 30- or 60- day out clause for both parties so you would have to give notice. Management contracts are usually pretty flexible.
The first thing you want to do when repositioning is to remove the bad tenants because they are dragging down your multifamily apartment. Other tenants in the apartment complex know who the bad tenants are. You want to get rid of the unsatisfactory tenants so you can create a family-friendly environment. You want your tenants to feel safe and sound.
Even if the bad tenant is paying his rent on time, you still want to remove him because he is bringing down the rest of the commercial property.
Repositioning offers you a way to increase the rent on your multifamily apartments. You can either go "all out" and completely rehab the property or go with the less intensive changes of cosmetic improvements or management restructuring. Be sure to carefully assess which option is best suited for your needs.
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