“NOI” Net Operating Income Explained

[@RealEstateFinanceAcademy]

What lessons or concepts would you like me to teach you? Tell me below! - Trevor

[@josephthomas1999]

Excellent video Mr. Calton, easy to follow and understand. Thank you

[@RealEstateFinanceAcademy]

My pleasure, Joseph. Thank you for the note.

[@gmhowardjr]

New fan. Thank you for these videos. Not sure why you don't have more views when you are the most simplistic and most accurate on KZbin. Question: I would live to duplicate how you are writing on the screen. Can you please tell me the kind of board and markers you are using.

[@RealEstateFinanceAcademy]

Thank you, George. Please feel free to share! ... I didn't buy the board. I custom-built it in my office specifically so I could face the camera. I use expo dry erase markers.

[@zacharygriest944]

First time seeing one of your videos. How are you writing backwards? 😂 Love the content

[@RealEstateFinanceAcademy]

Welcome aboard! Thank you for the nice words. Glad you like it! - Trevor

[@sebizs]

Great video! Thank you for precious information. Keep on, I am already a fan!

[@RealEstateFinanceAcademy]

Sebi_Zs Thank you! More to come!

[@ccol009]

That’s a cool board. It gravitates me to the math more.

[@RealEstateFinanceAcademy]

Thank you!

[@ccol009]

@@RealEstateFinanceAcademy You’re welcome!

[@Backtrack4Sec]

Great content! If you can make a video comparing between the GRM, CoC and cap rate with examples it would be awesome

[@RealEstateFinanceAcademy]

Check out my most recent upload. I’ll be expanding on that one soon. Thanks for the input! - Trevor

[@saucetowncity]

So, when calculating N.O.I., I need to not include the principal payment that helps makes up my mortgage, correct? (bc equity built with that principal payment, for example, can be used to refi and invest in more properties. We cannot count this number twice essentially) Mortgage, in my case is Principal, Interest, and Insurance... paused at 0:35 - are you writing backwards?!

[@RealEstateFinanceAcademy]

Hi there! That is correct. NOI does not factor in any financing payments. In other words, if you bought a property for all-cash or bought with the help of a loan, the NOI would be the same. NOI simply shows the income generated from the operation of the property BEFORE any loan payments (debt service) or distributions to the owner... The net cash after loan payments is called "Net Cash Flow (After Debt Service)" which is the NOI - Debt Service. This is the amount left over that goes to the owner after the bank has been paid. This number is not used to value the real estate. It only shows the owner's cash return on investment.

[@cspb9471]

What if you pass the expenses such as insurance off to the tenant? Would you still include it when calculating expenses?

[@RealEstateFinanceAcademy]

Yes, but you would also be showing higher income (usually in the form of “RUBS”) so the net effect on the NOI should hopefully be minimal.

[@lakshmireddy7004]

Could please kindly do a video on ratio analysis.

[@RealEstateFinanceAcademy]

Hi Iakshmi. Several of our existing lessons involve ratio analyses. What specifically are you looking for? - Trevor

[@JayLupe]

so how do i calculate my cash flow in commercial real estate?

[@RealEstateFinanceAcademy]

Your annual NOI minus your annual Debt Service will give you your Net Cash Flow before taxes.

[@JayLupe]

@@RealEstateFinanceAcademy thanks man

[@growingwiththewades8093]

what is the assumed percentage that will be spent on operating expenses?? Is there an assumed percentage, for instance: the assumed vacancy periods totals up to approx. 5%. So I guess I'm asking if there's a rough estimate of what chunk of the income earned from the rental property will be spent solely on operating expenses?

[@RealEstateFinanceAcademy]

Excellent question! The percentage of expenses, or the "expense ratio", is an important number to look at. But it varies by property type and by market. For example, in certain areas, you might have multifamily properties average 40% expenses. Similar properties in another market might average 45% because of higher property taxes or utility costs. The best way to understand the expense ratios in various markets is to look at different property listings and compare them to one another. Then you'll start to recognize the averages. For example, if most properties average $100/unit per month for water, and then you see another property has an average of $150/unit per month, then you may have an opportunity to create value by reducing the water expense, thereby increasing the NOI. Hope that helps! If not, let me know! - Trevor

[@RomanMoskva]

What would be an example of creating value to reduce the water expense and increasing NOI? Drilling your own well or something? Great channel, I am your newest fan, keep it up!

[@RealEstateFinanceAcademy]

@RomanMoskva Low-flow toilets, eco-shower heads, indigenous vegetation, smart sprinkler systems, gray water recycling systems… etc. 👍🏻 Thank you for the nice words! - Trevor

[@publicproclaimer9724]

I thought taxes was not supposed to come from NOI?

[@RealEstateFinanceAcademy]

Property taxes, yes always…. Income taxes, no. Hope that helps! - Trevor

[@AnimeGringo]

Thank you man

[@RealEstateFinanceAcademy]

You're welcome! Thanks for the comment. - Trevor

[@doge8676]

You are awesome.

[@RealEstateFinanceAcademy]

Thank you Deryk! - Trevor

[@rhythmandacoustics]

Hello. New to the channel. Looking to further my education on real estate investing. I liked and subscribed.

[@RealEstateFinanceAcademy]

Thanks for the comment and for subscribing. Glad you are finding these helpful! Feel free to request any other topics or lessons you'd like to see. - Trevor

[@汐璘苗]

とうございます」、

[@RealEstateFinanceAcademy]

Thank you :-) - Trevor