Increase NOI by Measuring Performance
Submitted by J. Debes
With the single-family market recovering and new supply from development coming on-line, analysts believe the “name your price” rent increase environment of the past couple years will start to dissipate in 2013. Most operators can consistently grow NOI when demand outpaces supply. However, when markets become more competitive, seasoned operators can still deliver profits by focusing on operating fundamentals such as vacant unit preparation or resident retention.
To focus on the fundamentals, you must first develop a means for measuring your effectiveness for each operating fundamental you wish to improve. If you want to reduce vacant unit preparation time (and therefore ideally reduce length of vacancy), operators must develop a means for measuring the length of time it takes to prepare a vacant unit for each property they manage. Most often, you can find such information within the standard reports in any software management programs. Start calculating average times for operating fundamentals and within a month or a quarter, you should have sufficient information to benchmark current operations.
Once you determine the average length of time to prepare a vacant unit at each subject property, you can then establish a goal for how long you think it should take to prepare a vacant unit. If a property’s average preparation time does not meet the desired standard, analyze the staff’s procedure for preparing the unit to identify time saving measures. For example, if the staff does not conduct pre move-out inspections to determine unit status before a resident vacates they lose valuable time. Contractors normally have at least a 2-3 day lead-time in appointment scheduling. If the carpet needs replacement and the staff waits until the unit is vacant to inspect it, they will have to wait 2-3 days at the very least for a new carpet. If they had performed a pre move-out inspection a week before move-out, the carpet contractor could have arrived the day the resident moved out to replace the carpet.
After you have established the reporting mechanisms to measure operating fundamentals and have set your goals, operators should continue to periodically record and share operating results. Let the site staffs know how their property is performing. If the staff is decreasing the amount of time required to prepare a vacant unit, sharing the results provides positive reinforcement for that staff and creates healthy competition between properties throughout the organization. Staff at properties that consistently exceed standards can often give you insight on how to improve operations throughout your organization and should receive praise and recognition too.
Constant monitoring of fundamentals helps multifamily managers make sure the staff is focusing their efforts on operational matters that increase net operating income. Every management company should establish, measure, and regularly report on operating fundamentals. Educate and train your staff on how they can improve their results and look to your top performers for the better means of meeting your goals. Through constant monitoring, effort, and refinements, good operators will continue to grow NOI consistently through all phases of the real estate cycle.