Will your property provide enough cash flow? How will your property perform? What is the net operating income? This video will walk through the net operating income metric, how you can calculate the NOI and the importance of the NOI! Net operating income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments! When investing in income-producing properties, the NOI shows investors how the property will perform after accounting for all of your operational expenses. The NOI can also help investors calculate a property’s cash-on-cash return, yield, and it’s cap rate!
Rebecca has been learning various real estate metrics and has come across a metric which she is unfamiliar with….. NOI
Rebecca is told by Natalie that the NOI or Net operating income is a metric that shows how efficiently and therefore profitable a property is being operated!
The NOI is calculated by the properties revenue minus it’s expenses!
Revenues will include annual rental income, minus vacancy while expenses will include property tax, insurance, management fees, and maintenance expenses…….but it does NOT include any debt tied to the property!
Rebecca asks why NOI is an important metric? Natalie explains that NOI can be used to determine if a property is a good investment!
Rebecca asks what is considered a good NOI?
Natalie explains that there is not a good or bad NOI… The NOI instead allows investors to compare the NOIs between properties and use the current NOI to see if expenses are too high, rents too low, or if a property is unaffordable!
NOI gives potential investors and current property owners a big picture of the state of the property…. allowing them to determine what they will offer on a property and what kind of financing they can expect.
Rebecca is excited to have a better understanding of the NOI…. Which will allow her to better analyze future investment properties!