On the face of it, there might not seem like there’s a lot of overlap between a property’s CAP rate and its relationship with its Internet provider. That’s because historically there hasn’t been. But today, with the paradigm shift away from traditional cable-managed WiFi toward Managed WiFi, properties not only have the opportunity to increase their NOI but also increase their valuation for prospective investors.
To understand how this work, let’s first define a few key factors:
What is NOI?
Net Operating Income (NOI) tells investors how profitable a property is on a monthly, quarterly, or yearly basis. The higher a property’s NOI, the more a real estate investor would be prepared to pay for it. Calculating NOI is simple:
Total income – total operating expenses = NOI
Installing Managed WiFi helps properties increase their NOI, because not only can they charge tenants more for this amenity – thus producing a new stream of revenue – but they’re also positioned more competitively within the market, which means they have higher take rates and can charge higher rent. All this increases the total income property brings in and, in turn, raises its NOI, making it more attractive to investors.
“The level of connectivity is increasingly tied to the NOI of a property. Investors increasingly want to know about the tech posture of a property, so they are not taking this lightly.” – Bisnow
But NOI isn’t the only metric that investors consider. Capitalization rates (CAP rates) are another key metric for REITs that can be impacted by installing Managed WiFi.
What is a CAP Rate?
A property’s CAP rate is the return calculated on the property’s anticipated income. Important to note, that in multifamily, the higher the CAP rate, the lower the valuation. Here’s how properties can calculate it:
NOI/Current market value = CAP rate
As discussed above, if a property has invested in Managed WiFi, and is experiencing the revenue benefits of doing so, it will have a higher NOI. The higher the NOI, the better the valuation. For example, we recently worked with a property with 305 units. After installing our Managed WiFi solution, they were able to charge residents $99/month for their WiFi generating $326,106 in revenue per year and less operating expenses (roughly $50,000 in support and the cost of the backhaul). This increased the property’s NOI by $280,000 and resulted in a $7,005,150 increase to the building’s valuation at a 4% Cap Rate.
Installing Managed WiFi is one way that property can increase their NOI, increase their value in the eyes of investors and deliver a positive, engaging resident experience. For more information about Cloud5’s Managed WiFi solutions, let’s connect.
Read more about the paradigm shift here.