For investors, the net operating income (NOI) is a key metric in determining the profitability of a property – usually a multifamily, duplex, or other commercial property. Investors need to understand how to calculate this formula or work with an experienced real estate agent so they have a clear idea of the financial viability of a property. A higher NOI often indicates a more lucrative investment.
The Importance of Net Operating Income
Knowing the NOI of a property is crucial for investors because it serves as an indicator of a property’s financial health. It also allows them to gauge the property’s ability to generate more positive cash flow. NOI is a metric that can also be used among the current owners, as it will allow them to assess how much it costs to maintain property versus what they are making from it.
How to Calculate Net Operating Income?
Before listing a property, a real estate agent or investment professional will gather all pertinent information about the subject property. This includes property details like square footage and number of units; income from rent, parking, and other fees; and property expenses such as repairs, maintenance, and insurance. To calculate the NOI, you will subtract all property expenses from the revenue generated.
How Net Operating Income Can Help Your Property Management Business?
Calculating a property’s NOI gives investors a birds-eye view of the income it generates in comparison to the cost it takes to run the operation. By evaluating the NOI, owners can make informed decisions regarding the property’s budget, rental rates, and other ways to improve its financial performance. Real estate agents or investment professionals can advise owners on which areas need improvement.
Knowing net operating income metrics is an empowering tool for investors. In addition to managing financials, landlord software such as TurboTenant is another beneficial tool for streamlining crucial tasks in the management of investment properties.