The traditional thinking in residential real estate is that a property is worth what someone else is willing to pay for it. And while that’s undeniably true, the answer of what a property is worth is different when it comes to commercial real estate. The kicker: with good property management, you can boost your investment property’s market value.
This is why good property management is centered on improving a property’s net operating income (or NOI).
What is NOI?
NOI is calculated by adding up all the revenue from your rental property and subtracting any of your operating expenses. There are two obvious ways to go about improving this metric. You can either:
- Increase your revenue, and/or
- Decrease your expenses
This is often easier said than done and can be a delicate process, especially when it involves things like raising tenants’ rents, but it is absolutely possible.
Some suggestions based on our experience at RL Property Management.
A Case Study for Improving a Property’s Market Value and Performance
A few years ago a client came to us for help managing his 44-unit, scattered site portfolio of single-family residences in Columbus, Ohio. In terms of NOI, it was clear right away there were opportunities for improvement. Vacancy was high, rent was below market and utility collections were spotty.
To improve this portfolio’s overall performance, we got to work right away by addressing a handful of issues that, when taken collectively, amounted to a significant improvement in value and return for the property owner. Here are a few actions we took:
- Standardized collection of water and sewer charges (and detailed those responsibilities in tenants’ lease agreements)
- Stabilized occupancy levels and only filled units with quality tenants (which also resulted in reduced turnover and thus reduced expenses)
- Renewed leases to raise average rent amounts – over time we brought rent rates in line with the market, which amounted to an almost 10% increase for this particular client.
None of these actions in and of themselves were particularly drastic, but when they all came together, the trend lines across the board steadily improved. And not only did cash flow to our client increase, but the NOI did as well – thereby increasing the value of the overall portfolio.
If you need help addressing performance issues with your rental properties, please don’t hesitate to get in touch with us at RL Property Management. We take great pride in being able to help our clients improve their returns and look forward to helping you, too.