You’ve seen it on your balance sheets and cash flow statements, but how much does your net operating income (NOI) impact your day-to-day decision making? Investopedia defines NOI as “a calculation used to analyze real estate investments that generate income.” Your NOI takes into account all revenue your property generates, as well as any operating expenses incurred from managing and upgrading your property. It’s an important indicator of the financial health of your property, and it can help you to determine whether a planned upgrade will result in an investment or a money pit.
To calculate your NOI for this year, you’ll need the following information:
- Last year’s NOI - find this on last year's cash flow statment
- Gross Potential Income (GPI) – the total rent you’d receive this year at full occupancy
- Standard Vacancy and Credit Loss – any potential loss of rental revenue from unpaid rent or vacant units
- Gross Operating Income (GOI) – GPI minus Vacancy and Credit Loss
- Projected Operating Expenses
Here’s the formula you’ll need to calculate your NOI:
NOI = GOI – Operating Expenses
The Balance explains calculating your NOI with the following process:
- Determine the Gross Operating Income (GOI) of the property:
Gross Potential Income - Vacancy and Credit Loss = GOI
- Determine the operating expenses of the property.
- Subtract the operating expenses from the GOI to arrive at the NOI.
You could do the math yourself, but we’ve saved you the trouble with our handy NOI Calculator. This tool does more than just calculate your NOI. We designed it to help you understand the costs and payoffs of investing in your property with affordable in-unit laundry.
Add Value with Top Amenities
Upgraded units can attract new residents to your vacant units, and can also entice your current residents to renew their leases for another year. In a previous blog, we discussed a number of simple apartment upgrades that are sure to increase your property value, including new light fixtures, fresh paint, high-end kitchens and hardwood floors. Adding in-unit laundry is an investment that pays off quickly.
Upgrades that Pay
The National Apartment Association (NAA) conducted a research study to identify top amenities at both the community and unit level and which ones have the greatest impact on revenue and NOI across the nation.
NAA study results showed energy-efficient appliances, high-end kitchen appliances and in-unit laundry as the highest revenue influencers at the individual level. Regardless of the amenity you choose to add, you will increase your operating expenses up front.
- Energy efficient appliances
Adding energy efficient appliances to your units will undoubtedly save your residents money on their monthly utility bills, but what will it cost you? According to NAA, the average cost/unit to upgrade to energy efficient appliances is $2,027.
- High-end kitchen appliances
Residents crave high-end, stainless steel kitchen appliances. They’re timeless in style, easy to clean and are extremely durable. You’ll get a lot of life out of stainless steel appliances and you’ll contribute to a greater quality of life for your residents. NAA reports that if you want to upgrade to stainless steel appliances, you’ll likely spend around $1,383 per unit.
- In-unit laundry
Adding in-unit laundry is a cost-effective upgrade to your units. If you add traditional laundry, NAA found you’ll spend $835 per unit, but this doesn’t take in to account costs to install vent runs, reconfigure plumbing or equipping the room for makeup air. Although ventless laundry has an initial higher price point , you can save on installation costs. Combo units can fit in closets or under countertops, but ventless laundry comes in stackable and side-by-side versions as well. When you add in-unit laundry, you can easily justify increasing rent by $25-$100 per unit.
Adjusting Your Net Operating Income
A traditional NOI calculation does not take the costs and payoffs of adding amenities. Our adjusted NOI calculator factors in additional operating expenses as well as potential rent increases that can result from adding in-unit laundry. Try out our calculator to see how your net operating income could improve if you add in-unit laundry.