NOI Growth: Build NOI With Ancillary Revenue

By: Michelle Ramos

The real estate industry has seen one of its most significant shifts in years, with rents reaching new heights and inventory as scarce as ever. Despite the higher than average rent rates, build-to-rent (BTR) operators must think of the future and strategize ways to build their net operating income (NOI) over time to increase each asset's and portfolio's overall value.

As a recap, NOI is the return or reward to the investor for taking the development risk by planning and constructing the development. In essence, the goal is to increase the asset's value so that the operating income balances the cost of operating. Fortunately for operators, there are various ways to accomplish this, one of which is through developing streams of ancillary revenue.

How does ancillary revenue build NOI?

Ancillary revenue is non-rent revenue, additional income generated from sources other than the traditional rent income. These extra revenue streams will then increase the asset's overall value and yearly income in ways other than collecting the monthly rent. It makes sure that operators are never leaving money on the table and capitalizing on the services that can generate revenue and lead to higher resident satisfaction.

To build these streams, build-to-rent operators need to include the right services they can charge for, and residents are willing to pay for them. These can either be an additional fee, a 'tech fee' for smart homes, or other services like bundled cable, community WiFi, pest control, or something even as simple as vending machines in community areas. The trick here is to understand your resident demographics and find a service, or services, that would add value to their lives so that they are willing to pay an additional fee for having the added convenience within their community.

With the right strategy and a little creativity, operators have the opportunity to grow their asset's income in ways other than the traditional means.

Determining the best avenues for ancillary revenue and getting started

Before jumping into strategies, operators must take a step back to understand their current resident base and demographics. Where is the property located? What is the median household income? Are residents able to spend any disposable income? Is there anything residents have already expressed interest in? These questions should push operators towards the right strategy as no two properties are 100 percent alike.

Apart from answering those questions, a great place to start when developing this strategy is with technology. Millennial residents, for instance, are very interested in smart home technology. As a tech-first generation, they have grown up with technology and appreciate the convenience it can add to their lives, so they're willing to pay more for smart homes.

Additionally, many renters are very interested in community-wide WiFi throughout their communities. This means connected WiFi that goes from their house to the gym to the community center with no downtime and a strong connection. This service is one clear tech-based idea that can add ancillary revenue while also increasing resident satisfaction at the same time.

Finding a strong partner to help you deliver these services is crucial to the program's success. Ensuring that the partner understands your goals, property, and residents makes a huge difference in developing a long-lasting relationship and strong program that hits the revenue goals you've set in place.

Growing ancillary revenue with SmartRent

At SmartRent, we believe in relationship building to ensure our clients attain success with our solutions. From installation and beyond, our team is always available to help build-to-rent operators and their residents make the most of their new solutions and truly understand the benefits of each. In addition, we offer services and solutions that help build-to-rent operators generate ancillary revenue that can, in turn, grow their NOI.

Aligning with current market trends, our Managed WiFi solution offers build-to-rent operators the ability to leverage community-wide WiFi as a stream of ancillary revenue while appealing to residents. This instant-on, private connection lets residents immediately access WiFi the minute they move in, never experiencing any downtime. Offering a reliable connection throughout the community, our Managed WiFi solution allows operators to generate additional revenue by offering this service to residents at an extra fee.

Next up is Alloy Parking. This solution allows operators to monetize their underutilized parking spaces for those build-to-rent communities with unused parking spaces. The solution lets guests pay for visitor spaces by quickly scanning a QR code from parking signage. Operators can quickly gain revenue through a solution that also grants them complete visibility into their property's parking health.

So, is ancillary income your next big strategy? Let our experts guide you through the process. Set up a personalized demo to get a peek into how a SmartRent partnership can grow your ancillary revenue and help build your NOI.