Net Operating Income (NOI), the next component of the cash flow statement, is an important gauge of a property’s financial strength.
Two types of vacancies exist:
Physical vacancy consists of any unoccupied units that are available for rent.
Economic Vacancy includes the physical vacancies plus any space that is leased but not producing rent, such as the following.
1. Apartments used as office, as models, or for storage.
2. Apartments provided to staff as part of their compensation.
3. Space that cannot be rented as is the next step in working toward NOI and calculating before-tax cash flow (BTCCF) is to add miscellaneous income and expense reimbursement to the GPI.
Property managers are responsible for identifying and recommending ways to boost revenue and reduce expenses. Be mindful of opportunities to create value for the property and recapture costs. For example: