Beyond NOI: Measuring the Cost of Resident Acquisition Apr 19, 2017 Net operating income (NOI) is the most essential metric multifamily property investors measure. However, NOI doesn’t always give you a complete picture of what is actually causing you to leak revenue from your portfolio. NOI is a single metric—so it lacks the context needed to be useful in decision making. NOI can’t tell you whether you’re spending too much to get new residents, whether your residents are truly profitable or the best next decision you need to make to maximize your gains. It tells you your results, but not the “why.” Because of this, real estate is beginning to take inspiration from the SaaS industry, to identify new metrics that can be used to judge the efficiency and the effectiveness of the business. One such metric used by SaaS companies everywhere, is CAC—or “cost of acquisition.” This helps measure the amount of money needed to acquire a new customer. In real estate, you can think of CAC in terms of Resident Acquisition Cost (RAC). When looking at the whole cost, there are three equally important factors to keep in mind: Marketing cost: The amount of money spent on everything related to sales and marketing, including promoting your Craigslist postings, advertising your properties or improving a property’s curb appeal. Turnover cost: The amount of money spent on cleaning, remodeling or renovating a recently vacated unit in anticipation of a new resident’s arrival. Vacancy cost: The amount of money lost while a unit sits vacant between residents. While some multifamily property investors factor in both marketing and turnover cost, some may not think to factor in vacancy cost as well. To determine your RAC, you need to add your marketing cost, turnover cost and vacancy cost together and then divide by the number of new residents you acquired. To see how the RAC is calculated, let’s look at an example: Marketing cost: $4,000 Turnover cost: $4,500 Vacancy cost: $5,000 New residents: 5 = Total RAC of $2,700 As time goes on and the price of everything from potato chips to apartments increases, your RAC will naturally increase as well, but if you’re noticing a dramatic increase in RAC, or a higher RAC in certain property groups, you may want to pay attention—as it could be an indicator that your costs are too high, and impacting your ultimate returns. Looking Ahead: A New Way to Look at Multifamily Data In the multifamily industry, our problem is not a lack of data, but rather the way we use it. Too much of our data stagnates in silos, and too few multifamily property investors think to look at metrics beyond their NOI. When you’re trying to determine the profitability of your multifamily properties, think about how you can leverage the data you have today, and don’t settle for metrics that only explain one chapter—instead, use metrics that tell the whole story. Go Recent Post Customer Spotlight: South Oxford Management Introduction to Rentlytics 11 Multifamily Industry Trends to Look Out for in 2018 Subscribe Tell us your email address and we'll add you to the list. Subscribe If you are human, leave this field blank.