Imagine this scenario. You can demand higher rents, attract longer-term residents, and sustain high occupancy rates, even in today’s market. Plus, the value of your investment in your multifamily property increases. All without a dime of capital investment in facility upgrading or remodeling your units. The figures on both your income statement and balance sheet can show improvement. And, not coincidentally, so does your net operating income (NOI).
How do you do this? You choose the right internet partner and purchase bulk fiber internet. And from that one wise decision, benefits can flow. In this blog, we’ll show you how.
How to thrive in uncertain markets
These are unsettling times for builders and owners of single-family home communities and multifamily property real estate. Your net operating income (NOI)—and whether it is rising or falling—is your best metric to determine how shifting demand, inflation, interest rates, increasing taxes and insurance expenses, and other factors affect your investments and multifamily property values. And residential communities’ NOI has been notably volatile in recent years, primarily due to the pandemic.
NOI is a profitability metric that tells you how much money you have left after paying all your expenses (excluding taxes and mortgage payments). Property owners focus on this measure because it drives multifamily property value and their rates of return on investment (ROI). Net operating income can affect getting financing and mortgages, and virtually all aspects of real-estate investment are based on it in some way. Simply put, NOI = gross income – operating expenses.
Why you want to bolster your NOI:
- NOI measures your cash flow—you can evaluate it weekly, monthly, or annually.
- NOI helps investors determine an initial value for a property.
- NOI can help you compare multiple properties to see which provide the best cash flow and initial property value.
- NOI gives you and investors insight into what to expect from ongoing revenue.
- NOI helps lenders determine the risk of lending money.
For these and many other reasons, residential builders, multifamily property managers, and homeowners’ associations are always looking for ways to increase their NOI. There are two paths: add new revenue sources or cut costs.
Let’s look at cost first. Cost considerations are a vital part of a real estate company’s ability to deliver on its NOI objectives. But cutting costs has been difficult in the last few years. Expenses skyrocketed during the pandemic. Property taxes, insurance and repair, and maintenance were the main drivers of cost increases. Insurance premiums alone were up nearly 19 percent per unit.
Upping revenue through offering fiber internet to increase NOI
Going for the other option—trying to boost NOI by increasing revenues—traditionally involves property renovation or modernization to charge higher rents. But this accrues even more expenses in the short term because of the cost of capital improvements. So residential property owners and HOAs have more recently been shoring up revenues by offering for-fee amenities to residents such as laundry facilities and community room rentals—all capital-intensive projects.
But there is another way: give your residents lightning-fast and reliable connectivity.
Connectivity? Yes. As it happens, bringing fiber internet such as Quantum Fiber into your community can help boost your NOI. A recent Parks Associates survey finds that about 4 in 10 U.S multi-dwelling apartment residents say they’re open to bundling internet services with their monthly rent. What’s more, over three-fourths say they’re willing to pay higher rent if the service is included. By leapfrogging ahead of your competition with potentially unsurpassed fiber connectivity and superb service, you can charge—and get—higher rents. Your residents can be more loyal and renew their leases. And by offering services from an internet provider that provides industry-leading customer experiences, you can help reduce the human capital of attending to constant repairs and access requests. That can lower your operating costs even more.
Count the ways fiber can tangibly increase NOI
Here are three ways you can tangibly enhance NOI when you have a bulk fiber internet agreement with a service like Quantum Fiber:
- Restructure internet costs. By signing a bulk fiber internet contract with Quantum Fiber, you can reduce the expense of the broadband services you already provide to residents at non-bulk rates, giving you a significantly larger operating margin.
- Include fiber in rent. You can either increase the rent (with a profit margin built in) or keep it level with non-connected competitor properties in your area. Either way, you can potentially improve occupancy rates by attracting more residents—thus increasing NOI.
- Offer fiber as a value-added amenity. Under this model, you would sell fiber connectivity to your residents at a profit compared to what you pay your bulk fiber internet contract provider. The returns can be surprisingly lucrative. There is one important caution. Your internet provider should recommend internet amenity fee ranges, so you don’t upset your residents by charging them higher-than-market rates.
Do the math for a bulk fiber internet deal
The math is straightforward when it comes to figuring what you can earn:
$ monthly rate you charge per residents/units – $ property bulk monthly rate = $ incremental revenue.
Want to see how much incremental revenue you can earn per year? Multiply your answer by 12. Then multiply that number by the number of units you own or manage.
And because you’ve got a locked-in bulk rate for years (up to ten years), your incremental revenue doubles by year two, triples by year three, and so on.
|Contract Year||At Year 1||At Year 2||At Year 3|
|Incremental Yearly Revenue||$ 25,000||$ 25,000||$ 25,000|
|Cumulative Revenue over time||$ 25,000||$ 50,000||$ 75,000|
*Numerical values are for demonstration purposes only.
The longer your agreement, the longer you can project revenue. Locking in a long-term contract gives you a fair market rate well into the future.
But over the years, the margin between the bulk rate you secured for high-speed internet and the current fair market value could have several incremental changes because internet rates tend to go up—i.e., what your residents would pay on their own.
*Numerical values are for demonstration purposes only.
That means you can increase the monthly rate you charge over the next five or so years. Projecting forward, and factoring in a rate increase, revenue can jump significantly.
|Contract Year||At Year 4||At Year 5 (+rate increase)||At Year 6||At Year 7|
|Incremental Yearly Revenue||$ 25,000||$ 35,000||$ 35,000||$ 35,000|
|Cumulative Revenue over time||$ 100,000||$ 135,000||$ 170,000||$ 205,000|
*Numerical values are for demonstration purposes only.
Need to keep adjusting the monthly rate you charge over time? Plug it in and watch your revenue continue to swell.
Fiber is what residents are demanding now
According to a release from the National Multifamily Housing Council (NMHC) and Grace Hill, their joint 2021 Renter Preferences Survey shows that 70 percent of renters will be teleworking the same amount or even more in the coming year. And they are greedy for bandwidth. A full 82 percent stream video daily, 73 percent stream music, 39 percent videoconference for work, and 31 percent are gamers. In other words: connectivity is key at home.
This demand for broadband internet will only grow as people who became accustomed to centering their personal and professional lives around the home during COVID-19 are expected to remain homebodies even as the pandemic wanes.
Fast internet is also a priority for so-called cord-cutters, who reject expensive cable bundles and depend on streaming apps they can watch with just an internet connection. A recent survey by The Trade Desk predicts that almost a third (27 percent) of U.S. households will cancel their TV packages by the end of the year.
Fiber: broadband technology of choice for enhancing NOI
When residential builders and property owners talk about the need for broadband internet, what they’re really saying is that they need fiber-optic technology. Fiber offers tremendous speed, capacity, reliability, and low-latency. And, as far as its advantages as an internet technology are concerned, fiber is the most expandable and scalable connection out there today. For example, current laptops and smartphones don’t come anywhere near maxing out the capacity and speed of fiber. In effect, it’s a future-ready technology.
Future-ready fiber also powers up non-tangible property asset values
While tangible assets are physical things used in a company’s operations, intangible assets are the nonphysical attributes:
1. Increased property value. Installing fiber to your property is an investment that can reap current and future market improved value.
2. Resident satisfaction. As a top amenity, fiber internet gives residents a reason to stay, to keep their connected lives running seamlessly.
3. A true partnership. Finding an internet partner with end-to-end solutions can give you peace of mind—from design and installation to ongoing leasing staff and resident support. Plus, by choosing an industry-leading company you can trust and build a lasting partnership with, you bolster both tangible and intangible assets. End-to-end solutions allow you to support residents and staff alike long into the future.
With Quantum Fiber’s cutting-edge Tier 1 network, you get advanced cybersecurity preventative measures that increase your properties’ intangible assets. Resident satisfaction can dramatically improve because you can ensure your internet and WiFi infrastructure’s speed, simplicity, and security. And that can boost the intangible value of your residential community.
Bulk internet service with the right provider is key
Today, developers, builders, property owners, and HOAs have tremendous opportunities. As expenses continue rising—and squeezing your NOI—investing in bulk fiber to create smarter, more connected experiences for residents can improve your NOI and your property value.
Yes, the last few years have been a strain. But we all need to pay attention to the fact that fiber services, like those offered by Quantum Fiber, signal a permanent industry shift. As the live/work/play-at-home trend becomes the norm, now is the time to discuss a customized fiber solution for your multifamily property and reap the many rewards—both tangible and intangible.
In Part 2, we’ll look at what a bulk fiber plan is, and how to make sure you negotiate a favorable contract.
Read Part 2 of the NOI series.
Contact a Quantum Fiber Connected Communities expert to learn about connectivity solutions tailored to your multifamily community.
Quantum Fiber® Connected Communities provides customized fiber solutions for apartments and communities.