As a multifamily professional, you might obsess a bit over ways to improve Net Operating Income (NOI) at your properties. After all, increasing a property’s NOI is a key metric for driving property value.
As you know, two things can impact NOI – increasing revenue and reducing expenses. That’s why we’ve gathered up some strategies for revenue improvement and cost cutting that are not always obvious and can still help you hit your goals.
As you know, running a property comes with a long list of expenses, so you have a lot of options to consider in this area. One of your biggest property expenses – utilities – can be minimized by using these strategies:
Encourage conservation by billing your residents for utilities based on their usage
Recovering utility costs from residents not only adds money back to your bottom line, as explored further below, but done correctly, it curtails your operating expenses by encouraging conservation. A Fannie Mae study found that “When owners paid for all energy costs, median annual energy use was 26% higher than when tenants paid for the energy costs.” When your residents are charged a flat fee for utilities (all-you-can-eat model), or if they aren’t being charged at all, they use more.
If you want to charge for utilities, using submeters are the best option since they give a precise reading of each unit’s consumption. Alternatively, you can use an allocation model like RUBS (Ratio Utility Billing System), which calculates the utility consumption of each unit based on a variety of factors like square footage, number of occupants, etc. While the impact of using a RUBS allocation isn’t seen as directly as submeters, there is a cause and effect relationship.
Pinpoint and prevent utility waste with intelligent reporting
Charging residents based on utility usage also encourages them to quickly identify and let you know about any issues in their unit, such as leaky faucets. In addition, having a robust reporting engine like the PayLease Portfolio Insights Dashboard that allows you to compare utility costs across time periods, properties and other factors, quickly highlights anomalies or spikes that point to waste. If you’re using submeters, submeter health reports let you know if your equipment is experiencing issues and need to be repaired or replaced.
The most obvious income generator for properties is rent, but are still other areas that you can focus on. For instance:
Bill your residents for their utility use and your management costs
Utilities are often one of your property’s largest operating expenses. Charging residents for their utility usage allows you to recover those costs on your income statement, contributing to the revenue portion of your NOI. In addition, some properties may be able to recover costs for managing the utility calculation and billing process under a service fee line item, contributing further to their revenue line. This can be a tricky area, so be sure to work with regulatory and compliance experts to follow all the applicable guidelines for your communities.
Curtail and penalize utility “theft”
New residents have a lot on their mind. Moving is stressful and switching utilities into their name may not be top of mind. As a property professional, it’s important to know if any residents have failed to transfer utilities into their name. The sooner you are alerted to a resident not transferring utilities into their name, the sooner you can attempt to recover the “stolen” utilities and stop footing the bill for their usage.
Utility recovery contributes to your revenue line. But how about the time and effort your staff spent in discovering the error, generating invoices and following up with the resident for payment? Pending utility commission regulations in your area, you may be able to charge a penalty fee to delinquent residents, benefiting your property’s revenue line. Having a built-in business intelligence tool can not only help you identify when theft is happening, but provide the flexibility to set grace periods (if desired) and charge tiered penalty fees if someone is a repeat offender.
Offer incentives for on-time payments
Any efforts to improve the rent collection process and receive full payments, on time, can contribute to the revenue line of a property’s NOI. If you’re already offering an online payment option to improve office productivity and encourage on-time payments, what more can you do? One option for encouraging timely online payments is requesting credit reporting from your payments provider as a resident incentive. Some providers, like PayLease, have a credit reporting feature that is free to both property management companies and their residents.
Reduce payment delinquency and insufficient payments by using your utility bill to your advantage
Another option for encouraging online payment use and full payments is combining rent, utilities and other charges, such as club rentals, pet fees, or parking, on one resident statement. Studies have shown that online payment utilization can increase by 25% when these bills are combined. Residents receive one clear, comprehensive, itemized bill. They better understand their total charges owed for the month, and can quickly pay the full amount online.
In addition, some unified bills offer the opportunity for customized messaging to residents. This is a great chance to improve communication. According to a study by E Source, the amount of time people spent looking at and paying their electricity bill was 114 minutes per year on average, with a median of 60 minutes per year. People are invested in studying their utility bills because the amount is variable. Properties can use this to their advantage.
These are just a few ideas for how to increase your NOI by bolstering your revenue and reducing your costs. Want to learn more about recovering utility expenses? Contact us or download our white paper, Easily Recoup Utility Expenses and Increase NOI.
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