You cannot claim to be a real professional in the real estate business without adequate knowledge of this aspect of the business. This involves the evaluation of the Net Operating Income (NOI) with regards to its use in cap rate for determining the actual value of a property. We will be highlighting a breif overview of NOI and how to calculate this very important number.
Things To Consider
How Difficult is This evaluation?
Carrying out the actual Net Income for a real estate investment property is quite easy.
Maximum Time Required
This evaluation does not take time at all-it takes less than 5 minutes to be executed.
Method of Evaluation:
1. Calculate the total Gross Operating Income (GOI) of the property in question:
Gross Operating Income=Gross Potential Income-Vacancy and Credit Loss.
2. Evaluate the total operating expenditure of the property. This will cover areas such as expenses for legal and accounting, expenses for janitorial, expenses for insurance, expenses for maintenance, expenses for taxes, expenses for utilities, expenses for supplies, and expenses for management.
3. To get the Net Operating Income, you have to total operating expenditure from the Gross Operating Income. For instance, supposing you use a Gross Operating Income of $52, 000 and total Operating expenditure of $37, 000, the total Net Operating Income will give you $15, 000. Mathematically; $52, 000-$37,000 gives you the Net Operating Income of $15, 000.
General Tips:
You must pay attention to details to make sure every important detail is included in the calculation. Any missing expenses will result in an increase in the Net Operating Income, This will consequently make your client pay more than the actual worth of the property based on cap rate generated value.
There are a number of popular detailed investor calculation and appropriate spreadsheet to calculate them you can find online.
There are forums and platforms where all real estate investors gather to discuss important issues, strategies, share relevant knowledge and experiences and have some fun talking about issue that concern real estate investment with people of like minds.
Things You Need For This Calculation:
A good calculator
A comprehensive rundown of the entire operating system