NOI Formula

NOI Formula

The Net Operating Income (NOI) calculation is one of the most important formulas you should know, because it’s also used to determine the potential profit of an investment after all expenses have been made. It is also used in many other calculations (such as cap rate, debt coverage ratio, etc.).

In this article, we will break down an example of the NOI formula. To calculate the NOI, you take the Operating Income and subtract the Operating Expenses.

NOI = Operating Income – Operating Expenses

Net Operating Income Example: We have a property that rents for $1,215 per month and we assume a 5% vacancy loss ($60). The property also has the following budgeted monthly expenses:

Repairs/maintenance – $75

Property management (6%) – $ 73

Property taxes – $69

Insurance – $100

HOA Dues – $210

Total expenses – $ 527

In this example, the property’s operating income totals $ 1,215 and the property’s operating expenses total $587 (total expenses + vacancy loss). This leaves an NOI of $628 per month, or $ 7,536 per year. Remember, this doesn’t account for your debt payments, but if you own the property free and clear, this is the amount that would go into your pocket.

This is one of the most important calculations in determining if a property is a good investment. The lender will also find this number extremely interesting as this NOI formula contributes to how much money you will have to pay them! So, your loan amount is based upon this number.

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