NOI, or net operating income, is a measure of profitability for investment properties. It’s calculated by using the following formula:
Net Operating Income = (Gross Operating Income + Other Income) – Operating Expenses
NOI is an essential metric for real estate property owners not only because it’s directly related to cash flow (and who doesn’t want to improve cash flow?), but also because it’s a prime determinant of a property’s value.
Unlike owner-occupied real estate, investment properties are valued based on NOI and capitalization rates. While we have relatively limited control over cap rates, we have immense control over our net operating income. Here are some ways to improve your property’s NOI to be even more successful with your investment.
- Hire a property management company – Experienced property management companies focus on delivering superior service to your tenants while taking actionable steps to increase your property’s NOI. While some owners mistakenly believe that hiring a property management company will be cost-prohibitive. The reality is that good property management companies will save you money and help you maximize your property’s value.
- Optimize your maintenance processes – Maintenance expenses make up the largest portion of any real estate investor’s budget, and some of these expenses can be particularly hard to swallow. One strategic way to reduce expenses and thereby improve NOI is by being more thoughtful about your maintenance philosophy. Stay on top of preventive maintenance to reduce the likelihood of expensive breakdowns, invest in high-quality products that have longer lifespans and require fewer labor calls, and work with a property management company that has an in-house maintenance staff to save you money on maintenance.
- Reduce operating costs – Keeping your rental units operational, safe and habitable is an essential responsibility of property owners, but these operating costs can be steep. Rein them in by reviewing several of these ways to manage operating costs on your rental units. Specifically, be sure to scrupulously track your expense data to see where your greatest expenses are occurring.
- Address your vacancy rate – Vacant rental properties means all expenses and no income. Tip #1 for keeping your vacancy rate low is to rent to high-quality tenants. Not only are they more likely to stay in your units longer, but they’re also more likely to take good care of your property while living there. To hear more from us about other strategies to reduce vacancies in your rental properties, be sure to watch our webinar replay on the topic.
If you own an investment property in Franklin County, Ohio, and are looking for ways to improve your property’s NOI, give our team at RL Property Management a call anytime at 614-725-3059.