Net Operating Income

Here's a fast trick that many experienced investors use to estimate a potential value for an income-generating property. Multiply the annual net operating income (NOI) by ten; that will give you a very rough estimate value based on income for the property. Of course, this doesn't work for hot or depressed areas.

The key in such a method is determining the net operating income. We begin with the gross income, which includes all revenues generated by the property. Gross income would include rent, laundry income, late fees and parking charges. From this gross income, we would subtract the operating expenses.

The NOI is the gross income minus the operating expenses (discussed above). Again, the NOI does not include mortgage and other debt servicing payments in its calculation. As noted above, the NOI also does not take into account capital improvements and acquisition costs. The operative term is "operating": the net operating income consists of the gross operating income minus the operating expenses.

SAMPLE: Calculating NOI (annual calculation)

Rental income

$24,000

Laundry income

$4,000

Penalties and late fees

$300

Storage and parking

$2,700

Interest income

$50

Gross operating income

$31,050

Maintenance and repair

$2,500

Supplies and janitorial

$1,800

Scavenger

Real Estate 101

Real Estate 101

This book makes it easy to not only buy a home, but figure out everything that you need to do, even get a loan. In simple and easy to understand language, it talks about where you should buy a home, what to look for in a home, how to find a home, how to get an agent, how to get a mortgage and more. This is a step by step process that you, a new home buyer, can use to purchase a home.

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