Street Tip #1
Ground zero for increasing cash flow, NOI and property value is to realize that a $100 dollar increase in revenue has the same effect on NOI and property value as a $100 decrease in operating expenses. For example, a 5 cap translates to a $2,000 increase in property value for each $100 reduction in water and sewer expenses.
Water and sewer charges constitute a large portion of the property’s operating expenses, especially in states such as Florida and Las Vegas where water costs are extremely high. Every building is going to have water leaks, but many owners don’t realize how much money can be lost. To sit back and do nothing to correct the problem is akin
to throwing money right down the drain. Multifamily properties generally contain a large number of units that were built at the same time. As a result, plumbing, water heater failures, leaks, etc. tend to occur in batches. Additional problems caused by water leaks can subject owners to more liability, cost, and aggravation.
While performing due diligence on a prospective property, watch for the following problems: • The water and sewer expenses are extremely high • You notice dripping faucets, leaking toilets, and hissing sounds in the units • No water-savings devices were installed
Fixing these problems may provide an opportunity to significantly reduce water and sewer costs and operating expenses while increasing NOI and property value.
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