AI & Automation

4 Ways Leasing Automation Impacts your Net Operating Income (NOI)

Read time
5 MIN READ
Published
November 2, 2022
Leasing Automation

When was the last time you introduced a tool to increase your operational efficiency?  

Whether you are a property manager, onsite manager, or an owner, introducing new software is always equivalent to a standing trial.  

You have an audience to convince, you must present proof and there is always a chance that things may not work out.  

Anytime you invest in automation tool, it chips away a certain portion of your revenues. That's why every purchase needs to be grounded with a cold, hard, numerical fact. In other words, you need to equate automation's impact on your Net Operating Income (NOI).

How to calculate Net Operating Income for property management industry?

For anyone in the property management industry industry, NOI is not a foreign concept. Here’s a quick refresher on how to calculate Net Operating Income (NOI).  

Net Operating Income = Gross Profit – Operating Expenses

NOI Breakdown
What is NOI in Real Estate

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How do you calculate automation's impact on NOI?

Some purchases are super simple to analyze, while others require a more complex analysis.

When automating a task through a software the question you should ask is: how much effort a task requires and what's the tool's cost?

Notice we said effort. Effort = labor and labor = dollars. Your time is money, and this is actually one of the largest and most critical pieces of the property expense pie.

If you are spending X number of hours doing a task and the result is a $0 return on the property, you must immediately stop doing that thing. It is that simple.

Most property managers think low price = high NOI. Price is not the ONLY metric to evaluate a purchasing decision. Make sure there is value in the product too and evaluate labor as well. Value is key because it is a test of quality and price, NOT just price.

If an automation saves labor or brings you tenants who lease at your property, that is quantifiable and clearly a bang for the buck!

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What stops most property managers from making the switch?

By now, everyone in the industry understands that technology and automation are here for good. But when it comes to investing in it, here’s what stops most property managers from taking the leap:

1. Justifying Cost - It's hard to quantify the dollar value of mundane tasks, team productivity, and efficiency, hence making it tough to justify automation’s cost.  

2. Change Management - Switching over to a new software/system is rarely as smooth as you’d like it to be.  

3. Reputation Risk – The risk to your reputation should the investment fail to produce the desired results.  

4. Fear of Technology – Employees are often skeptical of embracing new technology owing to the perceived threat to their jobs.  

5. Onboarding – The time spent training employees and the resulting cost incurred can be a deterrent.  

Tech SWOT Analysis for NOI
Risks of Introducing Tech

4 Big wins of Implementing Technology in your PM Company

1. Reduce Operating Expenses by 15%

Automation has helped PM companies reduce operating expenses by at least 15%. Here’s how:

  • As your company grows, the headcount increases and so does your OPEX. Implementing automation tools can help you recover 30% of staff costs while helping you grow effortlessly.
  • Self-guided showings are perhaps the most cost-efficient automation out there. Not only do 80% of the leads actually prefer touring on their own, it also allows them to schedule showings after-hours and on weekends. Which in turn helps you fill a unit faster and recover rent losses.
  • 1 in 4 prospects never show up for their tours. Property managers waste time and incur unnecessary travel expenses in vain. Investing in a tool that reduces no-shows by 20% can bring this cost down significantly.  
  • AI leasing software like LetHub pre-qualify leads and only sent application links to qualified prospects. This saves you the expense of running background checks on leads who don’t meet the criteria (that’s at least $15 saved per disqualified lead).
  • PM teams perform better when they can work from home and office (hybrid model). Implementing right tools can ensure smooth operations while cutting office expenses big time! (By big time, we mean over $10k annually).
Tech benefits: OpEx reduce by 15%
How Tech Reduces OpEx by 15%

2. Recover rent lost due to vacancies

Given that the average vacancy rate in the US is 6%, annual rental income losses can accrue to almost $5000. It is no wonder that property managers rush to find new tenants for a property.  

With the right software, find qualified leads 5 times faster and recover most of your lost rent. Here’s how:  

  • Property managers, on average, get over 200 renter inquiries per week and it takes about 4 hours to sort through them all. An automated inquiry management system cuts that time down by 70%!  
  • Since 30% of leads lose interest if you don’t respond within 24 hours, you may be losing qualified tenants to your competitors. With the right leasing software, leads get instant responses, 24/7.  
  • If leads meet the qualification criteria, they are automatically redirected to your calendar. No more back and forth trying to find a mutually suitable time.
  • Auto-follow ups with leads can increase showings by 75%!  

3. Control Bad Debts and Rental Scams

Whenever a tenant defaults on rent and/or is evicted, owners accumulate a lot of bad debt. (Seriously, 20% of all renters are currently behind on rent). This drives up OpEx unnecessarily and reflects poorly on the management. Not to mention the cost and efforts taken to file an official lawsuit.

Here’s how you can kill two birds with one stone (we did say we take maximizing ROI very seriously):

  • Careful screening of prospects helps you find high-quality tenants who are much more likely to be responsible tenants.
  • Leasing software like LetHub conducts thorough background and credit checks on applicants, freeing you of the hassle. You can have your pick of qualified leads who meet your criteria.  

Another issue that cuts through your profits is the rising rental scams. Last year only, 43% of property managers were hit hard by lockbox break-ins. A fraud-proof lockbox tech can identify scammers and notify you right away.

  • LetHub lockboxes are not only reliable and secure but our double verification requirement (selfie and id card) minimizes rental scams so you’re not trading in one headache for another.

4. Property Management is a powerhouse of data – Let's unpack that value

Property Management is a powerhouse of data – data that holds little value without analytics and business intelligence.  

A smart tool that can capture the bigger picture for you or your investors can back you with profitable decision making.  

LetHub offers intelligent dashboards with clean, consistent data that gets updated in real-time.  Here’s how you can capitalize on these metrics:

  • Find out lead sources so you can redirect marketing efforts to maximize ROI by 10%.
  • Identify how well each property is performing e.g. the number of qualified leads it attracts so you can adjust rent accordingly.
  • Draw region-based comparisons and formulate area-specific strategies.
  • Predictive analytics that help you determine the rent for your properties.

Decision markers should reconsider their tech stack not just for the above reasons but to stay market competitive. Property management companies are seeing a shift in average profit margins across the industry as they implement artificial intelligence to automate monotonous tasks. Successful outcomes have reduced the risk associated with technology. Act now!

Common FAQs regarding NOI:

1. What is NOI in real estate?
NOI, or Net Operating Income, is a key metric in real estate that measures a property's profitability. It is calculated by subtracting operating expenses from gross revenue.

2. What is a good NOI in real estate?
A good NOI in real estate varies by market and property type, but generally, a higher NOI indicates better financial health. A positive and stable NOI suggests a property is generating strong income relative to its expenses.

3. How to calculate NOI in real estate?
To calculate NOI, subtract the total operating expenses from the gross income of the property. The formula is: Net Operating Income (NOI) = Gross Income - Operating Expenses.

4. Benefits of property management automation on the NOI?
Property management automation can significantly enhance NOI by reducing operating expenses and increasing efficiency. Automation tools can lower labor costs, reduce vacancy rates by speeding up tenant acquisition, minimize bad debts through better tenant screening, and cut administrative costs through process efficiencies. This leads to higher profitability and a stronger NOI.

Keep your leasing team happy and organised

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Author
Hibah Khan

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