Why Your NOI is Leaking: The Hidden Costs Every Property Manager Faces

The world of multifamily property management feels like a constant, uphill battle against rising costs, causing increasing pressure on profitability. If your financial statements feel like they've sprung a leak, you're not alone. Post-pandemic economic conditions have created a climate where almost every line item on your budget is seeing significant, often unexpected, increases.

Let's dive into the major culprits behind this "NOI leak" and understand why staying profitable is harder than ever.

The Soaring Cost of Doing Business

Several key areas are experiencing unprecedented pricing volatility, which directly impacts your operating expenses:

• Property Insurance: Forget moderate annual increases. We've seen a staggering 27 consecutive quarters of premium hikes before a recent, slight decline. Even with that small reprieve, insurance costs remain historically high. To keep costs in check, properties are taking on higher deductibles, accepting new policy limitations, and/or reducing coverage. Critically, insurance now comprises 17% of total operating costs, up from a historical 8%.
• Utilities: Of all expenses, utilities have seen the biggest surge. Multifamily utilities have increased by approximately 10% annually since 2021, now making up 15-20% of your total expenses. Natural gas and heating fuel have seen particularly dramatic jumps, but electricity, internet, and water/sewer costs are also significantly higher.
• Labor Costs: The competitive job market has driven up payroll and administrative costs by 8.5%, with on-site property team payroll specifically increasing by 12%. Attracting and retaining talent is more expensive than ever.
• Property Taxes: While rising property values can be a good thing for your portfolio's worth, they often come with a painful downside: higher property tax bills. Property values have increased 27% faster than inflation since 2020, leading to substantial tax burdens that vary by location but are hitting hard in many key markets.

The Silent Killer: Turnover Costs

Beyond these direct expense increases, there's a "silent killer" of NOI that many operators underestimate: resident turnover.

It might seem intuitive to focus on new leases, but the cost to replace a resident is far higher than retaining one. Consider all the factors that add up when a resident moves out:

• Vacancy Loss: Every day a unit sits empty is lost rental income.
• Make-Ready Expenses: Cleaning, painting, repairs, and appliance refreshes.
• Marketing Spend: The cost to attract and convert new leads.
• Administrative Costs: Processing applications, screening prospects, and onboarding new residents.

The total cost of turning over an apartment is estimated to be approximately $4,000 on average. This is a significant drain on your budget, often hidden across various expense categories, making it a critical "leak" in your NOI.

The Ripple Effect: Stress and Strain

These ever-increasing operating costs don't just impact your financial statements. They create a stressful working environment for your site teams, who are constantly asked to do more with less. And they often put the squeeze on residents, who are also seeing similar increases in their cost of living.

In order to remain both competitive and profitable, property managers simply can't conduct business as usual. The current climate demands a fresh approach to operations. In our next post, we'll explore proven strategies and technological advancements that can help you plug these NOI leaks, drive efficiencies, and even create new revenue opportunities, all while enhancing the resident experience.