By.. “Venu Vankadhara, Real Estate Investor”
Net operating income (NOI) is simply the annual income generated by an income producing residential/commercial property after deducting yearly expenses from yearly income. It plays a major role in deciding a whether property is a good investment or not? Hence it is very important for a real estate investor to understand this thoroughly.
NOI = Yearly income – Yearly expenses
Yearly income – This would includes rental income
Yearly Expense – This would include expenses for management, legal and accounting, insurance, janitorial, maintenance, supplies, taxes, utilities, Vacancy (usually 5%) etc.
Subtract the yearly expenses from the yearly Income to arrive at the Net Operating Income.
For example, let’s say a residential rental property generates a yearly income of $24,000 and yearly expenses are $4,000. NOI would be $24,000- $4000 = $20,000.
Estimating the Value of the investment property = NOI * 10
In the above example you can buy an investment property up to $20,000 * 10 = $200,000. That means you are earning 10% a year on the property. This is a very good return but in current housing market where home values are going up due to low inventory, you need to be ready to take 7 to 8% return a year. In this example where NOI is $20,000, you can pay up to $260,000 for a house.
Real estate property that generate around 8% return on investment is a good investment
Useful Link – http://www.coachcarson.com/rental-property-cash-flow/
Next Week Topic: Property Management
“Venu Vankadhara, Real Estate Investor”
“If you have any questions please reach out to Venu at his email address- firstname.lastname@example.org”
Disclaimer – This article is for information purpose only. All information presented here is accurate to the best of author’s knowledge. Vastavam.net and its undersigned are not liable for any misrepresentation on this web site or in any additional information given verbally or in writing relating to Vastavam.net. and its’ investments. It is the readers’ responsibility to verify all information given. Readers should consult their own legal, real estate and tax advisors about the suitability of real estate investment for their particular needs and situations.
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