SS269: 5 Ways to Increase NOI in the First 90 Days Post-Acquisition

SS269: 5 Ways to Increase NOI in the First 90 Days Post-Acquisition

After purchasing a property, landlords want to start increasing their net operating income, but value-add business plans take time to incorporate. In this episode, Charles discusses 5 ways of increasing your NOI during the first 90 days of property ownership.

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Talking Points:

  • You have just closed on a multifamily property; the next step is to start the value-add process. Typically, for our new properties, we do not raise rents significantly during the first 90-180 days on tenant renewals, since we are usually focusing on correcting deferred maintenance and upgrading common areas. For unit renovations, we are renovating the vacant units and new units as they turn over, and we want to keep the rest of the tenants at the property to stabilize cash flow while making these initial changes. Since we are jacking up rents on current tenants. 
  • What are some ways we can still increase the NOI?
    • 1. Sub-Meter Utilities. If the property you are buying does not have sub-metering for water usage, I would definitely set aside these funds from the beginning to get this done ASAP. It will cost money and take a couple of years to fully integrate, but as tenants turn over, the new ones will cover their own water costs. I would go so far as not to increase rent directly, but have your current tenants who are renewing take over their water costs and keep the rent the same. I would not raise rents and have them take over water costs at the same time; really, one of the other. The easiest way is to do it when units turn. 
      • You can also utilize RUBS, but RUBS is just a rent increase that will never fully cover the cost of the water usage, and one more thing you need to monitor. It is easier to have water sub-metered and have a third-party handle billing.
    • 2. Review Vendor Contracts. Typically, a new owner will bring in new property management, but you still need to choose vendors. This could include landscaping, janitorial services, trash removal, etc. The more units and properties you own, the more leverage you will have in your vendor negotiations. You probably checked many sources for your new insurance policy before getting it, but this will be one more thing you check at the annual renewal. 
    • 3. Reduce Tenant Turnover Time and Costs. Focus on how you can minimize the time and costs between the tenant’s move-out and the new tenant’s move-in. This strategy is an ongoing process that all property managers struggle with and seek to improve, as lost days of rent add up quickly. Moreover, we want to tighten up our tenant screening. Usually, the benefits of this will not become apparent for many months; it is smart to start the process now. Check out episode SS203 to learn more about some effective tenant screening tips.
    • 4. Review the Rent Roll and Improve Collections. Review the rent roll, confirm that the tenants in the units are the same people, and update their contact and work information. Next, start enforcing against tenants who are behind on their rent. Tenants who are slightly behind on rent: speak to them and set up a catch-up schedule; tenants with significant back rent might warrant the start of an eviction. It is very rare that a tenant who is 2 or more months behind on rent will ever get caught up. Maybe even 1 month behind is difficult to catch up. This is another reason we do not want to dramatically increase rents on current tenants who are coming up for renewal. Between the vacant units and the non-paying tenants, you already have a number of units that are not generating cash. 
    • 5. Efficient Upgrades. Start looking at what you can change to increase efficiency. How can you streamline the application process or leasing inquiries? How can we automate rent collection and implement an online portal that makes resident servicing easier? 
      • What type of energy-efficient upgrades can you make? Upgrade all common lighting to LED? Add photo sensors to automatically turn lights on and off. These upgrades, like water sub-metering, cost upfront money but will pay dividends for decades to come.
  • By utilizing some of these NOI-increasing strategies, landlords and property managers can start boosting their bottom line in the first 90 days without having to dramatically raise rents on their current tenants.

Transcript:

Charles:
Many new investors start increasing rents immediately after purchasing an apartment complex. But over the years, we’ve adopted a slightly different strategy. Welcome Strategy Saturday, I’m Charles Carillo, and today we’re breaking down five ways to increase NOI in the first 90 days post acquisition. So let’s get started. You have just closed on a multifamily property. The next step is to start the value add process. Now, typically for our new properties, we do not raise rent significantly during the first 90 to 180 days on tenant renewals. Since we are usually focusing on correcting deferred maintenance and upgrading common areas for unit renovations, what we’re doing is we’re renovating the vacant units and the new units as they turn over, and we want to keep the rest of the tenants at the property to stabilize the cash flow while making these initial changes. We don’t want to go from something that’s 88% occupied all the way down to 60% occupancy.

Charles:
We wanna maintain it at some level up there in the high eighties or low nineties while we are doing the renovations. So since we are not jacking up rents on current tenants, what are some ways we can still increase the NOY? Number one is submeter Utilities. Utilities are a huge cost, and if the property you’re buying does not have submetering for water usage, I would definitely set aside these funds from the beginning to get this done as soon as possible. It will cost money and take a couple of years to fully integrate depending on the size of the property. But as tenants turnover, the new ones will cover their own water costs. Now, I would go as far as not to increase rent directly on current tenants, but have them who are renewing take over the water costs and keep the rent the same. I would not raise rents and have them take over water costs at the same time though really it’s one or the other.

Charles:
And the easiest way to do this is when units turn. Now you can also utilize rubs ratio. Utility billing system is just another rent increase that will never fully cover the cost of water usage. And one more thing you need to monitor, and it’s easier to have the sub-metered and have a third party handle all the billing. They usually charge the tenants like a few bucks a month for doing the billing and they’ll take care of everything. It’s one thing you never have to really touch ever again. Number two is review your vendor contracts. Now, typically a new owner will bring in new property management, but you still need to choose your vendors. And this could include landscaping, janitorial services, trash removal, et cetera. The more units and properties you own, the more leverage you’ll have in your vendor negotiations. And you probably check many sources for your new insurance policy before getting it.

Charles:
This is one more thing that you need to check at the annual renewal for any of these contracts. Number three is reduce tenant turnover times time is in costs. So focus on how you can minimize the time and cost between tenants, move out dates and that new tenants move in time. And this strategy is an ongoing process that all property managers struggle with and seek to improve as loss stays of rent out of quickly. Moreover, we want to tighten up our tenant screening. Usually the benefits of this will not be apparent for many months, maybe a year later. But it is smart to start the process now. And if you want more information on this, you can check out episode SS 2 0 3 to learn more about some effective tenant screening tips. Number four is review the rent, roll and improve collections. So simply review the rent roll, confirm that the tenants are in the units, are the same people that are on in the rent roll and on the leases, and update their contact and work information.

Charles:
Maybe ask them if they’re gonna be renewing, get some more information and have a conversation with them. Introduce yourself and let them know what’s happening at the property. Next, you wanna start enforcing against tenants who are behind on rent and tenants who are slightly behind on rent. So speak to them, set up a catch up schedule. And tenants with significant back rent might warrant the start of an eviction right away. It is very rare that a tenant who is say two or more months behind on rent will ever get caught up. Maybe even one month behind is difficult to catch up in. So this is another reason we do not want to dramatically increase rents on current tenants who are coming up on renewal between the vacant units and the non-paying tenants, you already have a number of units that are not generating any cashflow.

Charles:
Number five is efficient upgrades. So start looking at what you can change to increase efficiency. How can you streamline the application process or leasing inquiries? How can you automate, run collection and implement an online portal that makes resident servicing easier? Maybe you can do something with marketing and you continually keep marketing running, not starting and stopping it. And what type of say energy efficient upgrades can you make? Upgrade all coming lighting to LED. Add photo sensors to automatically turn lights on and off. And these upgrades like water. Some metering costs money upfront, but they’ll pay dividends for decades to come and we don’t have to raise the rent on a one. By utilizing some of these NOI increasing strategies, landlords and property managers can start boosting their bottom line in the first 90 days without having to dramatically raise rents on their current tenant. So I hope you enjoyed.

Charles:
Please remember to rate reviews, subscribe, so make comments and potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndicationsuperstars.com. Look forward to two more episodes next week. See you then.

 

Links Mentioned In The Episode:

  • SS203: Insider Tips for Effective Tenant Screening

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