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What is NOI and How to Utilize It in Any CRE Deal: A CRE Educational Series for Beginners

Tuesday, October 31, 2017

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As a real estate investor, you will come across many opportunities when looking to make a purchase for investment. In addition to the overall numbers, there will be many contributing factors that will ultimately help you make the decisions to invest or not.

One very common figure that will come up often is called Net Operation Income (NOI). The NOI is a calculation used to analyze an investment by calculating the property’s income, less the property’s operating expenses. What that means is, after all expenses are paid, what does the owner walk away with at the end of the year or term of investment. So, below is a list of how to allocate income and expenses to make calculate this equation.

Income 

·         Rent-roll 

·         Taxes and other reimbursements

·         Rental of roof for antenna

·         Parking

·         Miscellaneous income (advertising etc.)

Subtract the following expenses from the income.

Expenses


·         Taxes

·         Insurance

·         Utilities (electric and gas or oil)

·         Water and Sewer

·         Payroll

·         Management

·         Maintenance and repairs

·         CAM- common area maintenance

·         Security

·         Replacement reserves -  funds set aside that provide for the periodic replacement of building components that wear out more rapidly than the building itself and therefore must be replaced during the building's economic life



Note: For properties that have been financed by banks, NOI can also be used for calculating: Cash ROI, Net Income Multiplier and DCR.

Stay tuned for more next week.
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