How to more than double the value of rental property through animation: the PAAN Report

By Bruce Firestone | Architecture

Jun 04

Most real estate investment coaches/mentors, concentrate on house flipping, no-money-down transactions, cost-cutting, how to buy below market (often by submitting dozens or even hundreds of offers until some naive seller bites on one), purchasing foreclosed property or tax sale property…

It all amounts to the same thing IMHO: Everyone is looking for a shortcut to wealth, and the only shortcut I’ve ever found is a shortcut to failure.

As part of my real estate investment and business coaching practice, I focus on buy and hold, adding value and differentiation, increasing NOI (net operating income) through various (clever) animations, then re-appraising and re-financing, taking $$$ out tax-free and then buying more property in a rinse-and-repeat process that really works. It’s the Warren Buffett methodology but applied to the real estate business… it’ll help you take care of yourself and your family for at least 3-generations.

A coaching student of mine (DT for short), did a PAAN Report (PROPERTY ANIMATION ANALYSIS AND REPORT: HOW TO BOOST YOUR PROPERTY RETURNS AND VALUE) for a client of his; she owns two adjacent downtown 4-plexes. He was able to show her how she could more than double the FMV (fair market value) of her twin buildings through some simple animations (that is, adding new revenue streams), which are summarized below.

Here’s my email to DT—

DT, I had a look at your PAAN Report for your client. It’s very well done. I like your use of beaucoup pictures/photos

I love naming individual apartments. I hadn’t thought of that before my wife Dawn and I did that for our 1-bedroom apartment on Airbnb, which we call the Hideaway. Your idea of calling that new 1-bedroom the “Lady Nora” after your client’s granddaughter is clever. This is a very strong point you made too: “This could be used as a selling feature when showing the unit to prospective tenants. People love a good story.” #Excellent

You say in your PAAN Report: “The average monthly parking income is $1,690 ($20,280 per annum). All 13 spots are presently occupied.”

Can you check what parking is going for in that neighborhood? You are getting an average of $130 per spot per month. Is there room to increase this? Oh! I see you deal with this later in your report 😊

I 100% agree with this: “Make the space more brightly lit with LED pot lights. This would make it pop the moment someone walks in to view the space.”

Lighting scenes are VERY important especially in a cold, dark country like Canada.

This is interesting: You are recommending she NOT put in a 3-bedroom apartment in her empty space. Instead you are proposing she create–a) a 1-bedroom, b) a bachelor microsuite plus c) either some storage lockers or workshops. The latter is instead of a communal laundry room, which won’t make as much money as the storage lockers or workshops and is a lot more work/maintenance for her for sure.

DT further states in his report: “Projected monthly rent after animation is $1,500 for her 1-bedroom unit. Based these projections, if she left it as a single 3-bedroom unit, it would probably command only $1,600. So, she us using half the space to get 94% of the income the full space would have gotten. And we still have the other half of the total space to go. How awesome is this?”

Using the leftover space for a bachelor unit and for workshops/storage is a really good idea, DT.

Next, DT deals with an empty ground-floor unit. What is the HABU (highest and best use) for this space?

Here’s what DT concludes: “At first glance, I imagined having an ice cream shop there with seating at the front for customers to relax and enjoy ice cream/soft drinks. However, after checking the zoning, I realized that this would not be feasible, as the zoning does not allow for this. However, it does allow for personal service businesses…

“As such, instead of being used as an apartment, the space could be configured into anything from a hair salon, a nail or spa shop, or even someone’s office (say an accountant or a lawyer or a coach!) The advantage of renting this space out as a hair salon or spa is that, in addition to base rent, you could charge your tenant a percentage of sales as well (3-5% could suffice). The tenant will also be responsible to pay a portion of the operating expenses such as utilities and maintenance.”

I added: DT, your percentage rent could be as high as 8% or, in the case of an augmented tenancy, even 30% or more!

Next DT dealt with the look of the buildings from the street–curb appeal is important to getting better tenants, who stay longer and pay higher rents.

DT says: “Regarding the all the units in both buildings, my recommendation is to install custom blinds.”

Yes, DT! We use California shutters everywhere or roller blinds if we can’t afford California Shutters…

Lastly DT looked at the outside of these buildings: “And let’s not forget offering more storage. There is already an outdoor, fenced area in the backyard. What if some sheds were placed there and offered to tenants or neighbors for storage?”

Right on!

DT summarizes the financial implications this way: “Just by animating one unit, let’s take a look at the Fair Market Value (FMV) based on income, pre and post animation.

“Wow! Notice the striking difference in FMV simply as a result of animating one unit. The FMV, based on income, nearly doubled. This cannot be emphasized enough. Now imagine if all other units were animated and all the other animation recommendations were implemented.”

What mark did I give DT on this assignment? A+

Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
Real Estate Investment and Business coach
Century 21 Explorer Realty Inc broker
Ottawa Senators founder
1-613-762-8884
bruce.firestone@century21.ca
twitter.com/ProfBruce
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brucemfirestone.com

-MAKING IMPOSSIBLE POSSIBLE
-FREEDOM VIA REAL ESTATE INVESTMENT AND PB4L, PERSONAL BUSINESS FOR LIFE
-FEHAJ, FOR EVERY HOME A JOB
-MAKE YOUR HOME WORK FOR YOU, INSTEAD OF YOU WORKING FOR IT
-HIGHER ROI NOT JUST FOR OWNERS AND INVESTORS, BUT FOR TENANTS, GUESTS, VISITORS, NEIGHBORHOODS, COMMUNITIES, TOWNS, VILLAGES, AND CITIES TOO

Note: some details changed to protect client privacy.

Image source: By Shadiac – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=31145094

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About the Author

Bruce is an entrepreneur/real estate broker/developer/coach/urban guru/keynote speaker/Sens founder/novelist/columnist/peerless husband/dad.

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