The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
While costs can only really be reduced so much, there are some areas where you can reduce your costs to improve your NOI. Focusing on energy efficiency upgrades like solar or LED to offset electricity costs, or installing low-flow fixtures to lower water bills can bring down your operating costs in a significant way. Another method, depending on state, is to challenge and appeal property tax assessments that determine your property taxes each year.
Richard Wilson: What is the most powerful booster of NOI you have found that is related to reducing cost versus adding lines of revenue?
Brian Burke: The most powerful ways to increase NOI is always going to be on the income side, because you can only limit expenses so much. But that doesn’t mean that there isn’t some room to increase NOI by decreasing expenses. I mentioned a minute ago about adding in solar panels, that’s a way to offset electrical costs that’s one way. Changing out exterior lights to LED that are more energy efficient is another way to save on electricity costs. Installing low-flow water fixtures like showerheads, faucets, toilets, that sort of thing, you can save on water bills. But one big one and it’s often overlooked, it probably has more impact than any other expense reduction you can do, is – and this doesn’t apply to every state – states that reassess the value of your property on an annual basis to form the calculation for your property taxes, appealing and challenging that assessed value every single year can produce enormous dividends. Because property taxes is one of your largest operating expenses, and if you can minimize that expense, or mitigate increases, it’ll go a long way towards improving your NOI.
Richard: Great, yeah, that’s really helpful. I hadn’t heard anyone bring that up in the interviews we’ve done in this space. So I appreciate you mentioning that.