{"id":15515,"date":"2024-12-07T17:48:00","date_gmt":"2024-12-08T00:48:00","guid":{"rendered":"https:\/\/www.neighbor.com\/storage-blog\/?p=15515"},"modified":"2025-02-20T16:11:18","modified_gmt":"2025-02-20T23:11:18","slug":"unique-ways-to-improve-noi","status":"publish","type":"post","link":"https:\/\/www.neighbor.com\/storage-blog\/unique-ways-to-improve-noi\/","title":{"rendered":"Improving NOI: How to Increase NOI Through Improved Tenant Screening and Lease Terms"},"content":{"rendered":"\n

Net Operating Income (NOI) is a key commercial real estate ownership metric, especially in the context of a multifamily property. While increasing rent is a common strategy to improve NOI, it can sometimes backfire. Increasing rent often leads to decreases in NOI, as tenants leave to find cheaper housing alternatives<\/a>. <\/p>\n\n\n\n

A more effective approach for improving NOI is to invest in more thorough tenant screenings<\/strong> so that you can attract and retain quality tenants. While, initially, a bad tenant may sound <\/em>better than no tenant at all, that is rarely the case. Bad tenants translate to missed\/late payments, noise complaints, and potential damage to the property itself–all of which are costly.<\/em> <\/p>\n\n\n\n

You may even have to evict<\/strong> some of these bad apples, a process that, on average, can cost anywhere between $3,500-$10,000, between lost rent, property turnover costs, and legal fees. Eviction isn’t just a hassle. It can cut into your monthly net operating income<\/strong>, which is why it’s so important to keep evictions at bay. <\/p>\n\n\n\n

But the NOI optimization shouldn’t stop there. You’ll also want to reevaluate your leasing terms. <\/strong><\/p>\n\n\n\n

Here are some innovative strategies for how to increase NOI.<\/p>\n\n\n\n

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The Impact of Improved Tenant Screening on NOI<\/h2>\n\n\n\n

A bad tenant is a nightmare come true in the world of property management. Bad tenants can leave you with property damage to attend to and an eviction to process. Once the eviction process is wrapped up, you’ll be tasked with finding a new tenant to fill their place.  <\/p>\n\n\n\n

As exciting as it is to have a potential tenant walk through your doors, it is essential to have a proper tenant screening process in place when dealing with multifamily properties.<\/a> When property managers take the time to prescreen tenants with proper application forms and credit checks, <\/strong>they can effectively<\/strong> lower both maintenance\/repair costs and eviction rates.<\/strong><\/p>\n\n\n\n

Common Turnover and Eviction Costs <\/h3>\n\n\n\n

The associated costs with turnover and eviction will directly impact your bottom line. These costs include unit cleaning and repairs, marketing and leasing fees, lost rent due to vacancy, and eviction-related legal fees. In addition to these costs and fees, tenant retention saves time for staff members and multifamily owners. <\/p>\n\n\n\n

Cost Comparison with Improved Tenant Screening<\/h3>\n\n\n\n

A higher NOI and better tenants will also improve overall property value<\/strong>. The table below shows potential savings a property can accrue when they implement a stricter tenant screening process. <\/p>\n\n\n\n

Type <\/strong><\/td>Turnover Rate<\/strong><\/td>Turnover Cost Per Unit<\/strong><\/td>Total Turnover Costs<\/strong><\/td>Eviction Rate<\/strong><\/td>Eviction Cost Per Instance<\/strong><\/td>Total Eviction Costs <\/strong><\/td><\/tr>
Standard <\/strong><\/td>40<\/td>$1,200<\/td>$24,000<\/td>5% (3 units)<\/td>$3,500<\/td>$10,500<\/td><\/tr>
Improved <\/strong><\/td>25<\/td>$1,000<\/td>$12,000<\/td>2% (1 unit) <\/td>$2,500<\/td>$2,5000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Recommended Tenant Screen Procedures <\/h3>\n\n\n\n

All property managers should have a property management software system in place with tenant screening capabilities. This system will help manage the recommended tenant screening procedures. <\/p>\n\n\n\n

Naturally, tenant screening procedures come at an additional cost, yet the money saved from lower turnover and less property damage will be quickly recuperated. The addition of tenant screening procedures should cost between $15 and $50 per tenant<\/a>.<\/p>\n\n\n\n

At the very least, we recommended the following tenant screening procedures for all multifamily building owners. <\/p>\n\n\n\n