How to Use NOI Like a Pro: Value, Cash Flow, and Loan Sizing in One Number
FREE Financial Analysis Fundamentals Course: https://www.realestatefinanceacademy.... Free Commercial Loan Document Kit: https://www.realestatefinanceacademy.... --- Net Operating Income (NOI) is the driving number behind the valuation of commercial real estate and it's important to understand where that number comes from, how it's used, and the significance that it has over our investments. Net Operating Income is exactly that. It's the net income from operations after all of the operating expenses have been paid. So if this is our total revenue and then we have our expenses, this is our NOI. Now, NOI can be used for a lot of things. For instance, if we take our NOI and we divide it by our purchase price (or value), that gives us our Cap Rate. NOI can also be used to calculate if we take our annual debt service, our NOI divided by our annual debt service that gives us our Debt Service Coverage Ratio. And finally since NOI is what we use to pay our debt service, if we take the NOI minus the debt service, that gives us our Net Cash Flow, which we can use to calculate our Cash-on-Cash return. Here are the steps to calculating the NOI on a property: First, we need to know what our Scheduled Rents are. Scheduled rents are the rents that would be collected on the property if all spaces or units were completely full 100% of the year. Effectively, it's the rent roll or the lease schedule times 12 months, for the total annual rents. From there, most of the time, we have an assumed vacancy. Vacancy can be variable depending on the market however most of the time we must assume that some vacancy is going to happen, and the industry standard, for at least multifamily vacancy or most investment properties, is 5%. From there we also get Other Income. Other Income can be laundry income, application fees or credit check fees, late fees, non-sufficient funds, anything that isn't part of the rent roll but it's still income to the property. And if we add these, we get our Effective Gross Income. Effective Gross Income, or EGI, is basically our net revenue number. From there, we need to take out Operating Expenses. Important note is that operating expenses do not include debt service or payments to the owner, but they are expenses that are related strictly to the operation of the property. So, for example, operating expenses would include things like real estate taxes, hazard insurance, property management, utilities, repairs and maintenance. Anything that is necessary to operate the property (along with collecting the rents) are considered operating expenses. Those would be our total expenses. And then, if we take our Effective Gross Income minus our total Operating Expenses, we get our NOI. If you have questions, please share them in the comments below. We'll answer all questions AND your questions help us to build more helpful material! #commercialrealestatecoaching #commercialrealestateinvesting #TrevorCalton #realestatefinance #investing #commercialrealestate #commercialloan #commercialloans #apartmentloan #multifamilyloan #apartmentinvesting #multifamilyinvesting #operatingincome #noi #netoperatingincome #EvergreenLLC #stepbystep #stepbysteptutorial #diagram #example #download #freedownload #howto CRE loan investing in real estate investment properties and commercial real estate commercial real estate lending commercial real estate loan SBA commercial real estate loan commercial real estate financing commercial property loan commercial building loan real estate lending best commercial real estate loans commercial property lending OTHER QUERIES: net operating income commercial real estate how to calculate net operating income how to invest in real estate multifamily real estate investing net income real estate net operating income explained net operating income formula net operating income real estate real estate real estate investing real estate investing 101 real estate investing for beginners real estate net income real estate net operating income real estate noi what is net operating income
