Are you wondering how landlords increase net operating income? In the real estate industry, net operating income (NOI) measures how profitable an investment is. Generally speaking, NOI is equal to the revenue from a property less all reasonable operating expenses before taxes.
If you’re a landlord, I’m sure you already know that the rent your tenant pays isn’t the same as your net income. You want your net operating income to be as high as possible, so you need to find ways to increase it without sacrificing tenants in the process.
Fortunately, this isn’t difficult with the right tips and tricks. Here are some great ways to boost your NOI.
3 Ways Landlords Increase Net Operating Income
1. Aim To Increase Re-tenancy
There can be considerable costs associated with vacancy rates. As a result, you miss out on one or two months of rental income while preparing the unit for rent, marketing the property, and finding new tenants. While the market for rentals is red hot of late, if that changes, and it will, you may consider offering incentives to limit vacancy losses.
2. Increase rent but minimize vacancies
Your rental income is the most direct way to increase your NOI.
Of course, raising rents isn’t as simple as telling existing tenants they owe more money next month. If they don’t agree with the increase or find somewhere else they’d rather live, they may move out when they can. That could result in additional expenses associated with tenant turnover and more extended vacancy periods.
A more effective strategy is to raise rents on new tenants moving in while allowing existing tenants to keep paying what they’re paying and only raising the rent by the area’s annual cost of living increase.
To determine what your rent should be, no matter where in the tenancy agreement you are with the tenant, you may also look at other properties nearby similar in size and amenities to yours. We’ve found craigslist rental is a great site to compare area rents.
3. Cut Your Expenses
Reducing your operating expenses is another approach to boost your NOI. Expenses include repairs, utilities, legal and administrative fees, advertising, reducing vacancies, and quickly turning vacant units to a new tenant.
You might also consider renegotiating contracts with your property manager if you own a multi-family or commercial property. This approach can create a snowball effect — the less money you spend, the more profit you make on each rental unit.
Final Thoughts
A slight shift in property management can lead to value in finding ways to increase your net operating income. While it’s a delicate balance that can differentiate between profit and loss, increasing net operating income could be a worthwhile undertaking.
Overall, careful planning and management can lead to an increase in net operating income. Still, if you are slow to make adjustments or changes, it could also mean disaster for your business.
If you own a rental property in New Orleans or Metairie and find it overwhelming to manage your real estate investments, reach out to Redfish Property Management. We are expert property managers in the New Orleans area.
Call us or visit our contact page, and we’ll get back to you as soon as possible.
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