Cash-on-cash return is a key metric for evaluating the profitability of an investment, especially in apartment syndications. For investors, understanding how to increase cash returns is essential to maximizing passive income and ensuring a successful investment. By breaking down this concept and exploring strategies for improvement, you can make informed decisions that drive higher returns from multifamily properties.
How can you increase cash returns on a multifamily investment?
You can increase cash returns on a multifamily investment by raising rents, reducing operational costs, adding value through renovations, improving tenant retention, optimizing financing, and leveraging tax benefits like cost segregation and depreciation.
How Syndicators Maximize Rental Income
One of the most direct ways to increase cash-on-cash return is to boost the income the property generates. Here’s how skilled syndicators make that happen.
Rent Optimization
Syndicators conduct thorough market research to ensure rents are competitive and reflect local demand. They don’t simply raise rents without thought. Instead, they analyze similar properties in the area and adjust rents to balance occupancy and profitability. This strategy ensures that rents are at the top of the market rate but still attractive enough to keep units full.
For instance, in the fast-growing Denver area, a syndicator who understands the market will adjust rents strategically. This could mean slightly increasing rents during a hot market or holding steady to maintain full occupancy during slower periods. As an investor, you benefit from increased rental income, which drives your CoC return higher.
Value-Add Projects Led by the GP
Many apartment syndication deals involve “value-add” opportunities. This means that the property might need a few updates to justify higher rents, which will increase cash returns for the investor. For example, upgrading kitchens, modernizing common areas, or adding amenities like secure bike storage can attract tenants willing to pay more. You, as the investor, don’t have to manage any of this. The syndicator takes on these projects, and the increased rent flows directly into higher returns for you.
Limited Partner investors usually don’t have to lift a finger while syndicators focus on adding value to the property to increase their returns!
1. Creating Additional Revenue Streams (Without Investor Involvement)
Another way to boost income—and thus cash-on-cash return—is by creating additional revenue streams. Syndicators are always looking for ways to make the property more profitable beyond rent.
Parking or Storage Fees
Many apartment complexes can add extra fees for services like reserved parking spaces or storage units. Let’s say a property offers the option of paid reserved parking spots at $50 per month. If just 10 tenants sign up for this, that’s an extra $6,000 a year in revenue—without raising rents. As an LP, you benefit from the extra cash flow without doing any work.
On-Site Amenities
Syndicators often add or improve on-site amenities like laundry facilities, vending machines, or even fitness centers. While tenants pay for the convenience, this additional income can quickly add up. For example, coin-operated laundry facilities in a 40-unit building could bring in several hundred dollars a month, boosting your CoC return.
Pet Fees
The rental market in cities like Denver is often pet-friendly, so syndicators can charge pet deposits or monthly pet fees. These fees increase income without additional costs, and again, investors see the benefit in higher returns.
Your syndicator does the work, you collect the returns.”
2. Cost Reduction Strategies Implemented by the Syndicator to Increase Cash Returns
Increasing income is only half of the equation. Reducing expenses is just as important for improving your cash-on-cash return. Here’s how syndicators cut costs, so more money flows to you.
Energy Efficiency Upgrades
Syndicators can implement energy-saving improvements like replacing old appliances with energy-efficient models, installing LED lighting, or adding smart thermostats. These upgrades reduce utility costs, which means lower operating expenses. When expenses go down, profits go up, and you as the investor see higher returns.
Sub-metering Utilities
Some syndicators also sub-meter utilities like water, gas, or electricity. This means that instead of the property paying for all the utilities, each tenant is billed based on their own usage. By transferring these costs to tenants, the property’s operating expenses drop, which results in higher CoC returns for you.
Property Management Efficiency
One of the largest operating expenses in multifamily properties is property management. Syndicators can use their experience to negotiate favorable contracts with management companies or streamline operations to reduce these costs. Every dollar saved in management fees goes directly into increasing your cash flow.
3. The Syndicators Focuses on Keeping Vacancy Low to Increase Cash Returns
Vacancies are the enemy of cash flow. When a unit is empty, it isn’t generating rent, and that hurts your CoC return. A smart syndicator focuses on tenant retention and quick leasing strategies to minimize vacancy.
Tenant Retention Programs
Syndicators can offer small incentives to tenants who renew their leases, such as minor unit upgrades (new paint, carpet cleaning, or appliance replacements). These incentives cost less than finding and onboarding a new tenant, keeping units occupied and rents flowing steadily. Low turnover means consistent cash flow for investors.
Strong Marketing and Leasing
If a unit does become vacant, syndicators with marketing expertise can quickly fill the unit. They use online platforms, social media, and real estate networks to keep vacancy periods as short as possible. This ensures that the property stays full, maintaining cash flow and maximizing your returns.
Your syndicator focuses on high occupancy so you can enjoy consistent returns with minimal vacancies.
4. Smart Financing Choices Made by the Syndicator to Increase Cash Returns
Financing plays a crucial role in determining your cash-on-cash return. Skilled syndicators constantly look for ways to improve financing terms and reduce the property’s debt burden.
Refinancing to Improve Cash Flow
If interest rates drop or the property’s value increases, syndicators may refinance the loan to reduce monthly payments. By lowering the debt service, more of the property’s cash flow is available for distributions to investors. This can significantly improve your CoC return, especially in the later years of the investment.
Interest-Only Loans
In some cases, syndicators use interest-only loans during the early years of a project. This lowers initial debt payments, freeing up more cash flow for investor distributions. While these loans don’t reduce the principal balance, they can help maximize cash flow and provide higher returns early in the investment.
5. Tax Benefits and Investor Advantages
Another often-overlooked way syndicators improve CoC return is through tax strategies. While real estate investing already offers great tax benefits, syndicators take these strategies even further to benefit their investors.
Cost Segregation Studies
Syndicators can conduct cost segregation studies, which break down a building’s components (like appliances, fixtures, and landscaping) and depreciate them faster. This increases the amount of tax deductions investors can claim, which improves your overall cash flow.
1031 Exchange Strategies
At the end of a deal, syndicators may use a 1031 exchange to sell the property and roll the profits into a new deal. This allows investors to defer capital gains taxes and keep their money working for them in new opportunities. Deferred taxes mean more money stays in your pocket, improving your long-term returns.
Let your investment work harder for you, while deferring taxes with strategic planning.
The Benefits of Partnering with a Skilled Syndicator
In summary, when you invest in a multifamily syndication, your General Partner works hard to maximize your cash-on-cash return. From increasing rents and cutting costs to smart financing and tax strategies, your syndicator’s expertise directly impacts your returns. And the best part? You don’t have to do any of the heavy lifting. As a passive investor, you reap the benefits of these strategies while your syndicator handles the operations.
If you’re ready to see how partnering with a skilled syndicator can help you achieve strong cash-on-cash returns, consider investing in multifamily syndications in growing markets like Denver. It’s time to let your money work for you.
Ready to see how a professional syndicator can maximize your returns in multifamily investing? Contact us today to learn why multifamily investment opportunities in the Denver, Utah, Idaho, and Seattle-Tacoma areas might be right for you.
