3 Ways To Boost Cap Rates And Increase Property Value

Brick House With Siding - Animating Your Real Estate Portfolio to increase cap rates“Animating” is a big word in my vocabulary these days – making properties and neighbourhoods…

  • ‘Livelier’
  • More exciting, and
  • Adding differentiated value

All of which can boost cap rates substantially and improve the surrounding economy.

How to create sustainable local economies is something I am passionate about, and something that I speak about not only in Canada but other nations as well.

The challenge is the same whether you live in rural Saskatchewan or on the Greek island of Crete—how to keep your most valuable resource—your children—at home or get them to return?

The answer is the same all over—nothing is sustainable unless it’s also economically sustainable.

Maybe your kids prefer the bright lights of the city at age 22, but before they’re 30, they’ll be thinking of having their own progeny…

And your town, village, township or county will start looking a lot more attractive, especially if there is an economic opportunity for them to come back to.

 

1) Coach Houses / Garden Suites

The city of Ottawa is looking at legalizing coach houses—granny flats or garden suites—in your backyard, above your detached garage, wherever you can fit it in.

Are they doing it because they want you to improve your ROI on your home or in your rental portfolio?

Not really.

They are doing it because a provincial policy statement mandates more affordable housing…

And one of the fastest ways of achieving that objective is by permitting, as of right, these types of infill projects.

It also has the happy consequence of boosting your ROI and cap rate, if you are a homeowner or landlord, as well as both densifying and intensifying existing residential areas.

Moreover, it will make them more socially diverse and interesting especially if they legalize micro retail too.

So one day soon, you may walk to your neighbor’s place to get a freshly baked chocolate-covered croissant each morning…

 

2) Tech Packages

There are many such things we can do to make our urban areas livelier while at the same time improving individual economic circumstances by permitting a proliferation of choice in the built form and their uses in our towns, villages, and cities.

There are some things you can do almost everywhere without waiting on your town council for approval.

It has always amazed me that small and large landlords don’t sell more stuff to their captive audience—their tenants—not just to boost their own bottom lines, but also to increase tenant satisfaction.

  • How long does it take the average person these days to get reliable Internet service hooked up?
  • How long to get Netflix operational?
  • To get a large screen TV wall-mounted?
  • To hassle around with your local company to get basic cable working?
  • To get a net phone going?

I encourage landlords—large scale and small—to offer these services to their tenants so the day they move in, everything works.

Landlords can buy these services wholesale and resell them to their tenants at less than an individual client could contract for them directly, and still the landlord makes decent money.

 

3) Mini Storage

Another simple thing to add? Backyard mini-storage

In most jurisdictions, you can install a shed of 10 square meters or less without a building permit.

Now what does it cost to rent a 10’ by 10’ storage shed these days?

In most cities and towns, it’s somewhere between $100 per month and $135. If it’s indoors and heated, it’s more like $165 to $185.

 

So why not offer your tenants the opportunity to rent a storage shed in their own backyards for, say, $99.95, instead of having to get in their vehicle and drive to a remote storage location only to have to pay more?

One of my clients, who owns 75 units in 30 locations, is currently doing just that.

His current capitalization rate on his existing portfolio is a not bad 8.75% per annum.

He can add a full percentage point to that by reselling the tech package I mentioned above, and he can boost it further by installing 60 sheds.

The economics look like something this:

 

Mini-Storage Animation (New line of business)
BD portfolio 30 Buildings 2.5 Doors per building (avg) 75 units
Sheds 60 2 Sheds per building
Cost per shed $3,000
Cost of gravel base $300
Patio stones $1,120
Labour for base prep $240
Subtotal $4,660
Contingencies $839 18%
Total cost per shed $5,499
Grand total $329,928
Income (per shed)  $99.95 per mth
$5,997 per mth
$71,964 per yr
Vacancy ($5,757) 8%
NOI $66,207 per yr
Cap rate 20.1% per annum
Payback period 4.98 yrs
E&OE

 

With 60 storage sheds, he’s now in the mini storage business as well as the landlord business and the ‘providing-my-tenants-better-service’ business.

If you look at the cap rate on his mini storage enterprise, it’s a terrific 20.1% per annum so for sure his portfolio’s overall ROI is going to go up, which is nice.

But here’s the thing:

If tenants are taking advantage of loosening city regulations to establish what I call PB4Ls (personal businesses for life), why right out their back doors, they can store all the ingredients they’ll need to make their new micro enterprises a success.

Now that’s progress!

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Bruce M Firestone

B Eng (Civil), M Eng-Sci, PhD, Ottawa Senators founder,
Century 21 Explorer Realty broker
at www.brucemfirestone.com
Bruce is an entrepreneur, real estate broker, developer, urban guru, columnist,
and keynote speaker. He is perhaps best known as founder of the NHL’s Ottawa Senators and Canadian Tire Centre, a world-class sports and entertainment venue.
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