How to calculate NOI?

[Peyton LaBarbera]

My question is... When do I take out the average 5% vacancy fee and the average 10% maintenance fee? Are both taken out of the gross rental income before all of the other operating expenses or after you deduct the operating expenses?

Before Example: 100k gross rental income - 5% vacancy and 10% maintenance fee - all other operating expenses = NOI

or...

After Example: 100k gross rental income - all operating expenses - 5% vacancy and 10% maintenance fee = NOI

Correct me if any of these percentages are off or if you should calculate this a different way

Thank you,

Peyton LaBarbera

[Adam M.]

Hello @Peyton LaBarbera,

Yes so I'm assuming this is for a projected NOI in the future (guessing by the average 5% vacancy fee)?

1. Step 1 is to calculate projected rental income then immediately deduct the 5% from that, if you are using 5% as your assumption. This is because if 5% of units are vacant you are missing 5% of total rental income. 
2. 10% maintenance fee, I am not sure what kind of maintenance you are referring to but if this is a general expense i would deduct that from the (rental income - 5% vacancy). 
3. So in your examples the first option would be commensurate with what we typically expect if I am understanding correctly.  

Bonus: 10% maintenance fee is a little vague. It is key to be very precise on what these fees are and how they play into your projections. Do these include insurance? property taxes? landscaping? trash services? These should be all line items and depending on the size of the asset, can fluctuate significantly. 

Hope this is helpful!