What is Net Operating Income

You’ve decided that your next relocation will be to an apartment. You make a list to decide what you want in the house-hunting process. When it comes to the outdoors, you decide you want a pool, some green space for your dog, a patio you can picnic in, and any other recreation areas that may enhance your living space. As a tenant, you’ve described an ideal scenario, but what you’re looking for can be a nightmare for a multifamily property owner that is concerned about that property’s net operating income. NOI is a way that real estate professionals analyze value on a property and decrease NOI can sometimes coincide with increased water use. Check out what you need to know about NOI and how to increase it for a multifamily property.

What is net operating income (NOI)?

Net operating income (NOI) is used to calculate how profitable a real estate investment is. NOI is equal to the revenue from the property minus all the reasonably necessary operating expenses. It is worth noting that all calculations are done prior to taxes. 

NOI demonstrates the value of a property’s earning income because you understand how the profit looks after you remove the costs. NOI can also provide a greater overall picture as it looks at what goes into the property value of the real estate itself. Sure, a fountain, sprawling lawn, pool, and tennis court may look beautiful and sell well, but what are the maintenance costs of those features? How does that impact NOI? Multifamily properties especially are impacted by high operating costs of certain facilities that may look nice, but ultimately provide little benefit to tenants while also costing a lot to the property owner or management company.

5 Ways to Increase the NOI of a multifamily property

  1. Add one or more profit centers. The way that you want to do this is ultimately up to you! This can be done by adding a vending machine or a laundry room or even tracking individual water use. For example, if you wanted to charge each tenant for their exact water use, you can now do so with WaterCompass. WaterCompass is a non-invasive device that can do this for you and help increase your NOI simultaneously.
  2. Enhance property curb appeal. Curb appeal is essential for multifamily housing properties because a prospective resident’s impressions are what gets them in the door. Do the landscape and building look inviting? Does the lawn have brown patches in one area and a huge clogged puddle in another? Installing a smart irrigation system can help you moderate your lawn automatically – all while saving water (another cost on your monthly expenses!). You can also check out the 10 Things That Need To Be On Your Landscape Maintenance Plan here to get ideas on how you can increase curb appeal with sustainability in mind.
  3. Raising rents. No one wants to be the person raising your rents, but you want to make sure you at least have your rents at market rates. The trick? Look at your vacancy! If your property runs below the market vacancy rate more than average, then your rates may be too low, and you can raise them to boost your NOI.
  4. Go green. Just like you’re looking to save money with a decrease in your water usage, another great way to increase your NOI is by reducing your use of electricity. Make the big switch to LED bulbs and fixtures, which can save you up to 80 percent! It’ll make you that much more efficient and help you reduce costs.
  5. Add covered parking. Have you ever been to a multifamily property and seen both covered and uncovered parking? You may have wondered why they have both, and it seems a bit silly to think someone would desire covered parking enough to pay for it. Yet, depending on where you live, covered parking can save tenants from weather mayhem. Whether it’s raining, snowing, hailing or it’s just incredibly hot outside, your tenants’ cars will be protected. This new source of revenue is just one step towards maximizing the value of the property.

There are many ways that implementing smart water management solutions can increase the NOI of any property. From enhancing the curb appeal with smart irrigation to adding a profit center using leak & flow monitoring service, HydroPoint is your partner in smart water management. Contact us today to find out more information.