6 Ways Technology Improves Net Operating Income
When it comes to running a property, operating expenses can cut into 50% of a property manager’s overall income. When these expenditures get out of control, net operating income (NOI) suffers. To avoid this, here are 6 ways technology improves net operating income.
1. Reduced “Money-pit” Expenses
Money-pit expenses can hurt even the most successful property manager’s NOI—they can even put you in the red.
We define “money-pit” expense as any (avoidable) expenses that drain a property manager’s (PM’s) financial resources.
Examples of money pit expenses include:
- Ongoing water leaks/ water damage
- Unnecessary staffing expenses
- Leasing costs (or expenses necessary to attract tenants and to execute leases).
Smart technology helps reduce the cost of money-pit expenses like these by equipping PMs with smart devices that allow for 24/7 monitoring and response of their communities.
As a result, they are now able to allocate less of their budget to staffing maintenance personnel.
In addition to stemming the costs of money-pit expenses, a manager’s NOI can also be impacted by disasters like the ones described below.
(Here too, smart technology comes to the rescue).
2. Disaster Mitigation: Apartment Flooding
Did you know that most renters insurance policies do not cover water damage as it applies to Liability Coverage?
This can leave PMs like you picking up the tab for these types of disaster-related expenses.
For instance, apartment flooding, which you can read about here, brings on a variety of spiraling costs.
These costs include
- Waste and water removal (up to $8,000 each occurrence)
- Mold remediation (cost: upwards of $3,500)
- Reconstruction (cost: up to $70 an hour for labor)
To combat this, smart technology boasts smart leak detectors which catch water leaks as soon as they occur, preventing costly damages like apartment flooding.
3. Disaster Mitigation: Fire
In recent years, an estimated 109,700 multifamily residential building fires were reported within the U.S. annually.
However, by providing managers with real-time smoke alerts, smart smoke detectors help to eliminate the risk of fire-related expenses.
These real-time smoke alerts are synced to a helpful app that can be viewed even if the PM is not on the property.
Limiting the excessive costs due to fire damage is just another example of how technology improves property managers’ net operating income.
4. Disaster Mitigation: Burglaries and Break-ins
It’s also a well-known fact that residents are particularly vulnerable to break-ins and burglaries during the summer and holiday seasons.
As PMs are responsible for so many multifamily units (and even multiple communities in some instances), it’s simply not possible for them and their staff to be everywhere at once.
Additionally, a community’s vacant (or under-renovation) units are also vulnerable to break-in.
Even if it were possible to monitor every unit in a multifamily community in person, the staffing costs to do so would greatly decrease NOI.
On the other hand, smart entry sensors do this same work.
This easy-to-install technology enables PMs and tenants to remotely access and monitor the status of their unit(s), oftentimes through one single app.
The resulting real-time response and notifications when motion is detected protect the property from unwanted intruders, driving down NOI costs in the process.
5. Justification for Increased Rent
Why raise rent without raising the unit, as well as the community’s, value to the tenant?
Thanks to the smart property automation features described above, property managers are now able to see robust profit margins while also providing tenants with exceptional value.
With tenants feeling more secure in their communities, PMs now have a welcome justification for increasing rent.
6. More Lease Renewals
A happy tenant is also a lease-renewing tenant and it’s not a stretch to say that—given their newfound positivity regarding the management of their multifamily rental —tenants will now recommend their new smart community to a friend.
This game-changer results in fewer vacancies and greater net operating income for property managers.
Research shows that each retained resident is worth an additional $900 each year, and that is in addition to their rent payments.
Given that rental units are vacant for an average of 1.5 months, property managers stand to save an average of $1,350 per retained lessee.
Here is an elaboration of the point above based on the Orange County market:
If your rental price is $1500 a month and the average tenant “lifetime” is 20 months, that’s a lifetime value of $30,000. What if they stayed an additional 6 months?
That’s an additional $9,000 generated from each tenant. Keeping residents in your unit means you won’t have to market vacancies, and on top of that, you don’t open yourself to the risk of renting to a non-paying or problem tenant.
To be sure, happy tenants and their lease renewals also drive profits in rental properties by eliminating the costs associated with vacancy and tenant turnover.
Reduced expenses and greater tenant retention thanks to smart property automation means greater NOI for managers.
Don’t allow your multifamily investment to slip into the red.
Get to your financial finish line more quickly by upgrading to a smart community today.
Originally published June 5, 2020