Net Operating Income (NOI) are among the main factors to consider in a real estate investment. The reason is that they allow you to estimate the potential profitability of a 1-year investment, its maintenance costs and the financial health of the property.
Thus, with the NOI it is possible to anticipate the return offered by a property and know if it is the ideal asset for your portfolio. So, if you’re looking for
Business in Orlando for foreigners
or other opportunities in South Florida, you should know all about this income.
How to Calculate Profitability with Net Operating Income
Investing in dollars
in the United States is a smart way to leverage your
real estate capital
and earn an interesting
return in dollars
. Precisely, the NOI is an effective tool to calculate it. Learn how to do it here.
Excluded and Included Concepts
Net operating income does not include future taxes,
occasional gain exempt
or other items deductible from earnings. It also does not cover large costs of a single line item, such as
Structural repairs
.
In addition, if you have purchased the financed property, you must exclude the mortgage payments. Also, you shouldn’t consider improvements made by tenants, additional capital expenditures, or depreciation of the property.
On the other hand, the NOI does include expenses considered operating, which reflect the direct cost of ownership. These are:
- Property tax.
- Insurance against natural disasters, civil liability, etc.
- General maintenance costs, such as cleaning services, landscaping, etc.
- Minor repair costs.
- Charges related to the acquisition and management of the property, such as
real estate commission
, administrative costs, notary fees or expenses related to the
real estate trust
.
Net Operating Income Formula
NOI is calculated on an annual basis by adding the gross operating income plus other income that a property produces. Operating expenses are subtracted from this. I mean:
NOI = (Gross Operating Income + Other Income) – Operating Expenses
For example, imagine that you invest in 2 apartments in Miami, with a monthly rent of 2500 USD each. Per year, you would potentially have revenue of $60,000. To this you should add another 1000 USD per year for the consumption of washing machine tokens in the basement of the building. In addition, the apartments involve expenses such as gardening, cleaning, and lighting of common areas, which add up to an annual total of 14,000 USD. Then:
NOI = ($60,000 + $1000) – $14,000 = $47,000
This means that your apartment offers you net income of $47,000 per year.
- You may be interested in: Real estate depreciation: tips to prevent it from affecting you
H3: Interpretation of results
The NOI result shows how much money you end up pocketing at the end of each year you keep your investment. Its calculation allows you to:
- Compare the net income of a given property with other properties or assets in your portfolio.
- Evaluate whether the investment offers you the necessary return to cover financial leverage mechanisms.
- Determine the
capitalization rate of
your property. - Set the price of a property you want to put up for sale.
Without a doubt, investing in
real estate
in South Florida can offer you excellent returns for your portfolio. Just keep the following in mind: net operating income when investing in homes for sale in Miami and making a smart decision.
References
Rocket Mortgage. (2023, November 2). Net Operating Income (NOI): Definition and formula. https://www.rocketmortgage.com/es/learn/ingresos-operativos-netos
Urdaneta, E. (2023, July 6). Unlocking the secrets of commercial property valuation. Diario Las Américas. https://www.diariolasamericas.com/opinion/desvelando-los-secretos-la-valoracion-propiedades-comerciales-n5338975
