Savvy real estate investors are constantly looking for ways to increase their cash flow and the value of their multifamily properties. Are you? If not, you could end up making less money over time as expenses continue to climb and if vacancies increase. Improving cash flow and creating value is achieved by increasing net operating income (NOI), which can be done either of two ways – by generating more revenues or reducing expenses.
What is NOI and why is it important?
Net Operating Income is total revenue (rents & other income) minus total operating expenses (property taxes, insurance, management, maintenance, etc.) It does not include payments on financing, owner distributions, or non-cash tax benefits such as depreciation & amortization. Simply put, NOI is how much gross profit a property makes after paying its bills.
NOI is important because it is one of the key components in the valuation of commercial real estate, and it is one thing the owner or manager can control. The greater the NOI, the greater the value of the real estate. If you are looking to increase your cash flow, or especially if you are preparing to sell your property taking steps to boost your NOI can have huge payoffs in the end.
The value of commercial real estate equals the annual NOI divided by the market cap rate. So in a 6% cap rate market, a $50/month increase in NOI equals $10,000 in value. Apply that to multiple units, and the dollars can add up quickly.
First, take a look at your existing revenue streams. Are you getting the most out of them?
- Bring rents to market – Is your property consistently 100% occupied? Do you get a dozen calls in the first hour when you advertise a vacancy? If so, your rents may be too low. Conduct a rent survey or ask your broker for rent comps to see how your rents compare to your competitors. Find out More on Apartment Marketing here
- Reassess fees & deposits – When was the last time you compared your deposit & fee schedule to other properties? Do you know the actual costs associated with related items? Don’t get caught covering expenses that should be passed through to tenants.
- Add amenities for which renters will pay extra – Don’t underestimate that value that tenants place on time-saving appliances and creature comforts. For example, many prospective renters won’t even consider renting an apartment without a dishwasher and a washer & dryer in the unit, and they fully expect to pay for them. If space allows, the investment is well worth the additional potential rent. At the very least, nearly every apartment has space to accommodate an air conditioning unit. Even simply upgrading older appliances can have a positive effect on the attractiveness of a property.
- Valet Trash- A simple way to fix your residents doorstep waste inconvenience and generate $60 per unit per yer in NOI. This is the NOI Amenity Voted #1 by residents. It totally turn key and boosts retention.
- Laundry – Some properties are still charging the same for laundry that I was paying back in college in the ‘90s. Be sure your laundry prices are enough to cover your cost of the equipment, maintenance, and water usage. Other properties don’t have enough machines to accommodate the number of residents in the building. If you don’t want to deal with managing your laundry equipment, collections, and deposits, consider outsourcing the service to a third-party.
Next, we'll look at creating new sources of income. Stay tuned for More On the Economics of Rental Retention and How Keeping Residents Happy Drives Profit. In Future Newsletters, we’ll break down the economics behind tenant retention and look at how applying strategies to reduce turnover will have a positive impact on your profits, operating budget, and long-term success as a rental property manager.
Go with the Multi-Family Pros at National DoorStep Pickup 844-APT-TRASH