How to Calculate Net Operating Income: NOI Calculator
Have you ever thought about the best way to figure out how profitable a potential rental property purchase could be? What type of tools do you use when you are looking at how to calculate net operating income for the property you’re considering for purchase? We’ve created a noi calculator that can take the stress out of the equation!
Net operating income (NOI) is a key factor that should be calculated because it is considered a crucial indicator of performance. The higher the operating income over time, the more profitable the property would be.
What is net operating income?
Net operating income real estate is a calculation used to analyze the return on income-generating real estate investments.
In other words, the net operating income formula is calculated as the amount of Gross Operating Income received from the appraised property after deducting all operating expenses.
Typically, in the income statement, this calculation is announced at the end of the transaction section, calling it net operating income (NOI).
How to calculate net operating income?
First of all, you need to calculate the operating expenses you have. The typical list of operating expenses includes property management costs, utilities, staff salaries, payment for contractual services (telephone, fire protection system, elevator, etc.), insurance fees, maintenance and repair costs, tenant screening fees, legal fees, accounting and auditing services, pest control costs, entertainment expenses, etc.
Next, according to the net operating income formula you need to cut down on your gross operating income from your property by the number of operating expenses.
The Net Operating Income formula is simply:
Net Operating Income = Gross Operating Income – Operating Expenses
Be mindful that your net operating income calculation should not include your mortgage expenses. By not including them in your calculations, you can exclude items that are different from the property and get more accurate results to compare potential rental investments.
You should not have the idea that the analysis should not take into account the actual costs of the owner for the past period, and the projected average costs for the year following the date of assessment.
NOI helps real estate investors determine the level of capitalization, which in turn helps them calculate the value of the real estate, allowing them to better consider which properties are worth buying or selling.