Imagine this scenario. You can demand higher rents, attract longer-term residents, and sustain high occupancy rates, even in today’s market. Plus, the value of your investment in your multifamily property increases. All without a dime of capital investment in facility upgrading or remodeling your units. The figures on both your income statement and balance sheet can show improvement. And, not coincidentally, so does your net operating income (NOI).
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How to thrive in uncertain markets
These are unsettling times for builders and owners of single-family home communities and multifamily property real estate. Your net operating income (NOI)—and whether it is rising or falling—is your best metric to determine how shifting demand, inflation, interest rates, increasing taxes and insurance expenses, and other factors affect your investments and multifamily property values. And residential communities’ NOI has been notably volatile in recent years, primarily due to the pandemic.
NOI is a profitability metric that tells you how much money you have left after paying all your expenses (excluding taxes and mortgage payments). Property owners focus on this measure because it drives multifamily property value and their rates of return on investment (ROI). Net operating income can affect getting financing and mortgages, and virtually all aspects of real-estate investment are based on it in some way. Simply put, NOI = gross income – operating expenses.
Why you want to bolster your NOI:
- NOI measures your cash flow—you can evaluate it weekly, monthly, or annually.
- NOI helps investors determine an initial value for a property.
- NOI can help you compare multiple properties to see which provide the best cash flow and initial property value.
- NOI gives you and investors insight into what to expect from ongoing revenue.
- NOI helps lenders determine the risk of lending money.
For these and many other reasons, residential builders, multifamily property managers, and homeowners’ associations are always looking for ways to increase their NOI. There are two paths: add new revenue sources or cut costs.