For example, additions such as vending machines, an additional parking lot, and of course the aforementioned coin laundry setup all produce additional income for the property owner that should be considered when calculating NOI. Income producing properties can make money in many more ways than just through tenant rent. NOI is supposed to take into account all income, which is the GOI in addition to any additional income a property makes. Since a building being 100% occupied with zero vacancies is a rare scenario, GOI factors in vacancy and credit losses in relation to potential rental income. Potential rental income (PRI) represents the amount of income an apartment owner would make if the property was 100% leased, 100% of the time. That said, there are a few figures to consider for GOI: Potential Rental Income The gross operating income of an apartment property is designed to also mathematically account for fluctuations and possible outcomes regarding a property’s income. To assume that a property’s gross income is something that can be observed by simply looking at the rent roll is detrimentally false. Potential Rental Income - Vacancy Rates = Gross Operating Income While each property is unique and has different income producing components, as well as different operating expenses, here a few, not all, but a few areas to keep in consideration when attempting to calculate NOI: Gross Operating Income (GOI) The property’s gross income, for example, should not be calculated lightly or simply estimated, as this would give a false NOI. (Gross Operating Income + Other Income) - Total Operating Expenses = Net Operating Income How To Calculate Net Operating IncomeĪn accurate NOI can only be achieved if the right components are used in its calculation. The higher the net operating income is compared to the property price, the easier it is to find financing.
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