It’s no secret that property managers balance a host of priorities. Retaining and growing the asset value of the buildings they manage, however, is the cornerstone of the profession.
Increasing a property's investment value is a complex task, involving many variables to consider beyond scheduled building maintenance. At the end of the day, the key to increasing the asset value of a property lies in a property manager's understanding of the asset itself.
By maintaining visibility of their building's revenue and operating expenses, property managers can determine their property’s NOI and make powerful decisions to calculate for success.
So, what is NOI?
NOI, or net operating income, is a calculation used to determine the profitability of income-generating real estate investments. Calculated before taxes, NOI excludes principal and interest payments on loans, capital expenditures, amortization, and depreciation.
A property’s revenue can come from many sources, such as apartment rental payments, parking and storage fees, laundry machines, and more. A portion of the revenue generated by these sources goes towards operating expenses, such as staff salaries, maintenance fees, and property taxes. These expenditures are deducted from the building's NOI.
What makes NOI so Important?
Everyday, property owners place their trust in managers to oversee the care of their most significant investment. For that reason, a profitable building is an instrumental KPI, or key performance indicator, of a property owner's assets. Understanding the NOI of a property provides tremendous insight for managers looking to accomplish the ultimate task of their job: enabling the investment in a property to soar.
For instance, a manager looking to increase a property's NOI may install energy efficient appliances throughout the building to reduce monthly bills and boost profitability over time. In this scenario, there’s even an added bonus that enhances the long-term profitability of the building. By installing these appliances in residential units, property managers may improve resident retention and avoid the financial pitfalls of unit vacancies while increasing NOI over time. By understanding the NOI of a building, property managers can take educated steps towards reducing operating costs while improving asset value for the owners they work for.
Doing the Math: How to Calculate NOI
Revenue – operating expenses = NOI
Let’s break that down. Say a building earns $100,000 in yearly revenue, and incurs $65,000 in operating expenses each year. The NOI of that building would then amount to $35,000.
While the equation is straightforward, the challenge facing property managers often lies in consolidating the data necessary to determine NOI in the first place from the various platforms where information is stored. By hosting data on a variety of platforms, property managers are often forced to manually plug data from one into the other. This can lead to clerical errors that, when undetected, leave managers with a false understanding of their building’s NOI.
Tech-Enabled Accounting for Property Managers
To secure an accurate understanding of NOI, property managers can depend on tech-enabled accounting software to organize data. At Propra, our service accounting enables users to calculate NOI quickly by providing property managers with access to breakdowns of all the key revenue sources and operating costs that are part of the calculation. Made with Canadian property managers in mind, Propra keeps track of finances in Canadian dollars and allows you to set your location to properly account for taxes.
We understand that NOI is an essential figure in a property manager's everyday accounting practices. Our full-service accounting feature generates income statements and balance sheets at the property level, providing property managers with a holistic picture of their building’s finances while enabling them to plan for the future, make sound investments, and increase profitability.
Propra’s centralized software keeps all financial and property data in one place, preventing errors in calculations that come from moving from one system to another and ensuring a single source of truth of information that really matters. Request a demo today.