S.E.C. Real Estate Observer

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Sometimes we can simply improve management or make changes that don’t cost much money. But the greatest gains in NOI usually take place because the owner actually invests cash in improving a property. Here are a few ideas that may be useful in your community.

1. Invest in rehab that will increase rents and occupancy: Replacing a unit’s carpeting with laminated hardwood flooring is an idea that you may want to explore. This is beneficial for two main reasons. In addition to adding value in the eye of the resident or prospective tenants, the maintenance, replacement, and cleaning costs compared to carpet will be quite favorable in many markets. New kitchen cabinets, countertops, appliances, built-in microwaves, ceiling fans, bath fixtures, and lights can also command higher rents.

2. Invest in energy-saving and water-saving improvements that will save money every day or shift the burden of monthly payment: This might include installing separate water meters and piping so that tenants pay for their own water directly to the water provider, or this might include sub-metering and billing each unit monthly for its water and sewer usage.

In some communities, this is a huge expense. Rectifying it can create a value increase of $15,000 to $20,000 per unit with an investment of as little as $300 to $400. In the same vein, an owner can eliminate central hot water tanks or a buildings sole hot water tank and install a hot water system in each unit, letting the resident pay for heating the water as part of their monthly utility bill. When the heating or power is centrally metered, the same thing can be considered for HVAC and for the general power supply.

If you are not yet ready to make these changes, consider other changes that would lower the amount utility consumption that the owner pays for such as replacing toilets, shower heads, faucet strainers, adding insulation, and other actions. Simply having maintenance change out furnace filters every other month in every unit will reduce maintenance costs and result in an increase in the useful life of HVAC systems.

3. Think of the possible ways in which you can reduce turnover in your community and implement as many as you can. This single effort can result in major improvements to your NOI because the cost of turnover is one of the highest costs in operating your community. You can save on the cost of cleaning and refitting that occurs because of turnover, on the lost rent for the period that the unit is vacant, on the advertising cost for that unit, and on the cost and overhead associated with leasing personnel that are required to re-lease the unit.

One idea is to offer an upgrade a month or two before the lease is due to expire. Or maybe even make the upgrade without any promises, especially if there is something that needs to be fixed anyway. This way, the unit will be ready for higher rent for the next tenant whether the existing resident chooses not to renew.

These are just a few ideas that could increase NOI. Hopefully one or more of them can be applied to your community.