Calculating Net Operation Income and Cash Flows

Net Operating Income (NOI) , as one put it, is the center of the universe. Practically all valuations are based on NOI. It is the Net income from the property as if there are no Mortgages.

A couple of definitions first:

Gross Scheduled Income (GSI) is the income expected from the rental property assuming fully rented + any other income, say laundry.

Gross Operating Income (GOI), as the name implies, is the funds you have to operate the property. It is the GSI – Vacancy allowance.

Now,

NOI = GOI – Operating Expenses

Cash Flow Before Tax(CFBT)  = NOI – Debt Service (principal and interest)

Example,

A four-plex renting $850 a unit, expecting 2 months/year vacancies, and $4,000 annual operating expenses.

GSI = 850x4x12 = 40,800

GOI = 40,800-(850x4x2)=34,000

NOI=34,000-4,000=30,000

 

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