Investing in Improvements to Increase the NOI in Multifamily Communities

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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 due to the owner actually investing cash in improving the property. Here are several ideas that may be useful in your community.

1.      Invest in rehab that will increase rents and occupancy. One major idea to explore is laminated hardwood flooring to replace carpeting. This can work both ways, because in addition to adding value in the eye of the resident or prospective resident, the maintenance, replacement, and cleaning costs compared to carpet will be quite favorable in most markets. New kitchen cabinets and counters, appliances, built-in microwaves, ceiling fans, bath fixtures, and lights can also command higher rents.

2.      Invest in energy-efficient and water-efficient improvements that will save money every day or shift entirely the burden of monthly payment. This might include installing separate water meters and piping so that tenants pay their own water directly to the water provider, or sub-metering and billing each unit monthly for its water and sewer usage.  In Atlanta, for example, this is a huge expense, and can cause a major increase in NOI.  In the same vein, an owner can eliminate central or building hot water tanks and install a hot water system in each unit, letting the resident pay for heating the water as part of their monthly utility bill. If the heating and/or power is centrally metered, the same thing can be considered for HVAC and also general power supply. If you are not yet ready to make these major changes, consider other changes that will result in the property lowering its consumption for the utilities the owner pays for, such as replacing toilets, shower heads, and faucet strainers, adding insulation, and other actions. Simply having maintenance change out the furnace filters every other month in every unit will reduce maintenance costs and result in increasing the useful life of HVAC systems.

3.      Think of the possible ways you can reduce turnover in your community and implement as many as you can. This single effort can result in major changes to your NOI, because the cost of turnover is one of the highest costs in operating your community.  You can save not only the cost of cleaning and refitting the unit upon turnover, but also the rent for the period the unit is vacant, the advertising cost for that unit, and the cost and overhead of leasing personnel to re-lease the unit. One idea here 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 a higher rent for the next tenant even if the existing resident chooses not to renew.

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

Ernie M. Eden, CCIM, SEC
Senior Vice President
The Apartment Group
Bull Realty, Inc