Net operating income, or NOI, is an invaluable metric for measuring the success of your real estate business. As a measurement of a property or portfolio’s total income minus expenses, it’s a concise, clear way to assess overall performance. This means it also serves as a powerful tool for financial and operational insight that helps you plan strategically for the future.
In this article, we’ll move beyond simple discussions of rent to discover how you can boost the success of your commercial real estate investments with net operating income. Read on for tips on varying your revenue streams, handling industry expenses, and using NOI for detailed financial analysis.
Increase NOI with Revenue Sources Beyond Rent
One crucial tactic to improve the value of your investments with net operating income is to seek additional revenue streams after rent. While rent will be your largest income source as a commercial real estate owner, smaller income sources can have big advantages. Seek to add revenue streams with wide appeal, such as:
- Amenities, including parking or vending machines
- Mark-ups for higher quality utilities
- Leasing revenue from signs or other advertising space on your property
If well-structured, these small sources of revenue add up over time as more and more tenants or visitors use them. Remember to take care of any maintenance that these extra features may need. Large, unexpected repairs can decrease the impact of your extra income.
Unique Commercial Real Estate Expenses to Consider
As a commercial real estate owner, you have a variety of specific expenses to keep in mind when attempting to boost your net operating income. Many of these expenses are related to either building maintenance, like structural repairs, cleaning, and utility upkeep. Another major category is energy use, especially in common areas, such as elevators or lighting in hallways and lobbies. Take a look at these strategies to help keep these unique costs down:
- Lifecycle asset maintenance planning helps you stay ahead on upkeep for things like parking lots or HVAC repairs, preventing large surprise costs down the road.
- Common-area energy optimization includes finding energy-efficient alternatives and closely monitoring usage.
- Property tax reassessment strategies such as cost segregation studies can help you claim depreciation benefits on parts of your property that deteriorate quickly, like furniture and appliances.
- Long-term service contracts for work like maintenance and security provides you with predictable costs for years to come.
Handling Economic Factors: Inflation, Supply Chain, Labor
In addition to day-to-day property expenses, it’s also important to be aware of larger economic factors that impact your NOI. One major example of this is rising costs for labor, materials and utilities, especially surrounding recent changes to U.S. tariff laws. Higher labor and material costs mean your maintenance costs are higher, too.
In addition, it’s also important to be aware of supply chain disruptions. Delays or changes can result in volatile costs and of course, difficulty receiving the supplies you need to repair, upgrade, or furnish your properties.
The good news is that many of the tips offered in the last section can also help ease rising economic pressures. This is especially true for investing in energy-efficient technology and long-term service contracts.
Using NOI Benchmarks for Analysis and Strategy
NOI benchmarks are measurements that help assess how a portfolio is performing. They can help identify weak properties or portfolios and sometimes even point to the source of issues. One common way to do this is simply to look at your property or portfolio’s NOI next to that of comparable properties or portfolios. If yours is lower than average, it likely means you need to take a closer look at your expenses and income sources.
A second common measurement is to compare your NOI now to your NOI from a few years ago, sometimes called same-site NOI. This is a quick way to see growth and catch any spots that might be flagging. It’s important to note that NOI expectations might look different for different property types, such as an office vs. a warehouse. It’s always smart to take this into account when comparing assets.
Another advantage of same-site NOI is that it’s a useful starting place when forecasting your portfolio’s future growth. Having this estimate helps you make targeted changes that allow you to surpass your goals. This might look like boosting revenue, reducing unnoticed costs and planning for future expenses, or even optimizing leases for long-term profitability.
STRATAFOLIO’s NOI Solution
Looking for more insight into your net operating income and your commercial real estate business’s financial health? STRATAFOLIO commercial property management software integrates with QuickBooks to track all your financial data in one place. Dive into your NOI to see property-specific details and portfolio-wide trends. Easily track other key metrics like debt service coverage ratio (DSCR) and loan to value (LTV) for even more detail.
For more information on how STRATAFOLIO helps you leverage your investments with net operating income, schedule a free demo today.
