Increasing Real Estate Yield By Transferring Expenses
- Date: 2007-04-05 - Word Count: 348
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I was recently asked the question: "If I have already maximized my income and minimized my expenses is there really any other way to improve my NOI?" At first blush it sounds impossible. But its not.
Under the circumstances noted, which would be miraculous in and of itself, there still remains a couple of ways to improve the NOI of your property. One would be to add income streams. (We'll deal with that at a later date.) The second way is to remove certain expenses completely. This can be accomplished by either instituting a C.A.M fee, or by providing the mechanism for residents/tenants to incur given expenses instead of the owner.
The most common process for removing an expense from the owner and transferring it to residents is through submetering. For example; instead of the owner paying for all the electricity going into a property, individual meters could be installed and the individual residents would then be responsible for their own electricity. Yes this can be problematic when you first make the change. Tenants don't like it much at first as you can imagine. But things typically smooth out very quickly. This process can easily be the equivalent of a 10 to 15% increase in rents. Once the change over has been made, the owner no longer needs to worry about the cost of the utility, instead they need only concern themselves with maintaining the maximum market rental revenue.
One big question regarding this option is "How long does it take me to recoup my hard costs?" The answer is simple, look at all the costs to install the meters, and then divide that by the money saved each month to learn how many months it will take to break even. Thereafter the savings are driven to the bottom line. In many cases this initial expenses pays off handsomely in yield and value increase resulting for the greater NOI.
Like most things in this business, its not rocket science. A little experience, a little motivation, and a little help go a long way toward meeting your goals. Good luck in your career.
Under the circumstances noted, which would be miraculous in and of itself, there still remains a couple of ways to improve the NOI of your property. One would be to add income streams. (We'll deal with that at a later date.) The second way is to remove certain expenses completely. This can be accomplished by either instituting a C.A.M fee, or by providing the mechanism for residents/tenants to incur given expenses instead of the owner.
The most common process for removing an expense from the owner and transferring it to residents is through submetering. For example; instead of the owner paying for all the electricity going into a property, individual meters could be installed and the individual residents would then be responsible for their own electricity. Yes this can be problematic when you first make the change. Tenants don't like it much at first as you can imagine. But things typically smooth out very quickly. This process can easily be the equivalent of a 10 to 15% increase in rents. Once the change over has been made, the owner no longer needs to worry about the cost of the utility, instead they need only concern themselves with maintaining the maximum market rental revenue.
One big question regarding this option is "How long does it take me to recoup my hard costs?" The answer is simple, look at all the costs to install the meters, and then divide that by the money saved each month to learn how many months it will take to break even. Thereafter the savings are driven to the bottom line. In many cases this initial expenses pays off handsomely in yield and value increase resulting for the greater NOI.
Like most things in this business, its not rocket science. A little experience, a little motivation, and a little help go a long way toward meeting your goals. Good luck in your career.
Related Tags: real estate investment, rental property
Roger Beattie is an active investor/owner/manager of real estate including single-family homes, apartments, offices, land, recreational property, motels and restaurants. Read his blog at:www.middleclassmillionaires.com/blog Your Article Search Directory : Find in Articles
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