![]() The benefit is that this allows us to compare it to other investment properties on its own merits. All of these expenses are investor-specific and you do not include them in the NOI calculation.īecause the NOI tells us how profitable a piece of property is on its own. These below the line expenses include debt service, depreciation, income taxes, capital expenditures, and tenant improvement expense. These expenses are said to be “below the line” – meaning that these expenses come below the NOI line. There are a number of expenses that aren’t included in the NOI calculation because they are specific to the investor. Here are some examples of operating expenses: In other words, you only include the expenses that are property specific. The tricky part is only including the operating expenses at the property level – not the investor level. Once you have the Gross Income figured out, you then calculate the Operating Expenses. Then finally, add in the additional income (laundry, parking, etc) that might apply to the property. ![]() A shrewd CRE investor will look at the market and see what a realistic vacancy rate should be for the property. It would be fantastic if a property were 100% leased 100% of the time, but that isn’t reality. Potential Rent Income (PRI) is the amount of money a property would make if it were fully leased, 100% of the time, at market rates. Gross Income = Potential Rent Income – Vacancy/Credit Loss + Additional Income To calculate Gross Income, then, use this formula: A retail strip center might earn additional income from the tenants reimbursing the owner for proportionate shares of property taxes, insurance, and Common Area Maintenance (CAM). An office building might make additional income from paid parking. Not only did the apartment complex collect rent from the apartments, but the property made money from the laundry facility as well. When I owned apartments, many of them had coin laundry facilities. When I say gross income, I mean everything the property makes. The first step is to figure out the Gross Income of a property over the course of a year. NOI = Gross Income – Operating Expenses Gross Income The formula for calculating NOI is pretty simple, but takes some explaination. Pretty simple, right? But there are some nuances. You calculate all the income the property generates and then subtract all of its operating expenses. Simply defined, the NOI tells you how profitable a piece of property is. ![]() If I can achieve this while maintaining the operating expenses of the property, then I can significantly increase the Net Operating Income (NOI) of the property and ultimately the value The opportunity of this property is to increase the rents from an average of about $12/sf to the market rate of about $17/sf over a period of approximately 3 years. I recently put a group of investors together, and we bought a strip center. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |