Net Operating Income

[Kenneth Noronha]

Hey guys I know this might be a bit of a newbie question, but what is Net Operating Income? How is it calculated and what does it mean? I've been finding some mixed/unclear definitions. The same thing goes for Cap Rates. I'm not too sure what they mean/how they're found; I just know that it has to do with knowing your area.

[Kenneth Garrett]

NOI is the rent amount - expenses other than P&I.

Example is rent 1200 - taxes 300 - Insurance 50 = 850

Calculate Debt Service Coverage Ratio = NOI/P&I Example P&I = 600

DSCR = 850/600 = 1.42 Most banks want to see 1.25 we are good here.

I don't like capitalization Rates, but here you go

Annual NOI/Sale Price or estimated sale price

850 x 12 = 10,200/100,000 = 10.2%

Cap Rate is based on the area. Need a commercial broker to tell you what the area cap rate is.  Commercial and multifamily properties use this Instead of using comps.   Not a fan of this.

Hope this helps.