What is NOI and How Can You Increase It?

Posted On Friday, 08 October 2021 12:09

Net operating income, or NOI, is an important metric to use if you are investing in multifamily properties. Your success hinges on how well you understand NOI as an important factor in your investing strategy. 

NOI is used as an indicator of profitability. To get a property's NOI, you simply deduct its monthly operational costs from the property's gross income. 

Property management fees, taxes, repair and maintenance costs, and other monthly expenses can eat into the property's earnings. One of your goals as an investor is to increase the NOI of your assets.

Why do you need to increase NOI? 

Knowing that there is always uncertainty in the real estate sector, you will need to make sure your multifamily assets are generating income from rent, parking fees, and other sources.

Once you have acquired a multifamily property, it's important that it generates a positive cash flow if you are planning to resell the property later on. Along with the cap rate, the NOI is needed to calculate the market value of the property and let other investors know if it's worth buying. If the NOI is high, then it is likely to attract motivated investors. 

How do you increase a property's NOI? 

There are many ways you can grow the cash flow of your multifamily asset. Here are the most effective ones:

1. Keep track of the median rent

Median rent varies from location to location. If the property stands in a city where tenants are paying more in rent, then you will need to bring your rates up. However, make sure to run comparables first and keep an eye out for new developments nearby. Increasing the rent on a whim can only put off potential tenants. 

2. Make improvements to your property

One way to justify higher rental fees is to remodel the property from top to bottom. Consider adding new amenities that attract tech-savvy renters. Look towards a fiber connection, coworking space, smart locks, and even a rooftop bar. Coin-operated laundry and reserved parking spaces are also worth spending on. Value-add components such as these can add value to the property and attract more tenants

3. Let tenants chip in for utilities

In most cases, improving your NOI also involves decreasing your monthly expenses. If you can’t afford to raise rents at the moment, you might as well carry over the utility costs to your tenants. If the bulk of your income goes to utilities such as water and heating, consider charging residents for their monthly usage. This will require the use of submeters or using a Ratio Utility Billing System. Also known as RUBS, this system allows you to bill tenants for utility usage based on the size of their unit, the number of occupants sharing a unit, and other factors. 

Whether you are already maintaining a multifamily asset or in the process of acquiring one, set your eyes on the NOI and find ways to maximize it for greater profitability.

Rate this item
(0 votes)

Agent Resource

How to capture your next prospect - click here

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.