The following blog post is shared by Adam Slack, president and founder of Two Roads.
As a commercial property manager, you’re great at ensuring your properties are running smoothly. But how do you measure your success? What key metrics should you be looking at to assure that your properties are performing at their best? It can be hard to figure out what to begin looking at in your finances when you’re wanting to make informed business decisions. We’re detailing 3 metrics key for every property manager to track so when it comes time to purchase a property or make changes to an existing investment, you’re equipped to know where to start.
Operating Expense Ratio
This metric measures the ratio of your operating expenses to your property’s income. A low operating expense ratio suggests that you’re efficiently managing your property and keeping costs low. A high operating expense ratio can indicate that you need to reevaluate your expenses and look for ways to reduce costs.
OER is important to review and compare when you’re considering several properties to invest in. As an investor, you’ll want to look for any red flags such as high maintenance costs or utilities that negatively affect the property’s OER.
Net Operating Income
Net operating income (NOI) is a measure of your property’s profitability. It’s calculated by subtracting your property’s operating expenses from its total income. A high NOI is a sign that your property is generating significant income and is likely to be profitable.
To improve your NOI, you should look for ways to reduce your operating expenses while increasing your income. This can include things like reducing energy costs or improving your property’s marketing to attract more tenants.
The capitalization rate (aka cap rate) is a measure of your property’s return on investment – determined by dividing your property’s NOI by its current market value. While it’s important to know a property’s cap rate, the cap rate should be used in combination with other metrics when making a purchase decision.
A high cap rate indicates that your property is generating significant income relative to its value, which means it can be a good investment, but a high cap rate also implies higher risk.
To improve your cap rate, you should look for ways to increase your NOI while maintaining your property’s value. This can include things like increasing rent rates, reducing operating expenses, and improving your property’s overall performance.
Tracking these three key metrics can help you to gauge the success of your commercial properties and make informed decisions to improve their performance. Having a responsive team to lean on to provide accurate financials and advise on these decisions, like Two Roads, is essential to creating a business environment ideal for success.
By understanding and monitoring these metrics, you can ensure that your properties are profitable, efficient, and competitive in the market.
About the Author: Adam Slack founded Two Roads in 2011 to help businesses find their financial footing. He works with a great team of accountants serving businesses all over the country in multiple industries including Property Management. Learn more by visiting www.tworoadsco.com.
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