The Net Operating Income (NOI) is an essential component of commercial real estate. Without this calculation, the landlord will not be able to easily understand the overall annual income they have received from their property. Therefore, as a property manager, it is important that you not only make the monthly deposits to the owner’s account but also help them grasp the concept of NOI.
Since the sole purpose of commercial property is to gain profits, property management service providers for Puerto Vallarta real estate follow the practice of providing detail-oriented financial statistics to the property owners.
The Net Operating Income is the positive cash flow generated by commercial property in a year. it is calculated after subtracting all the expenses of the property from the benefits gained from it.
Here is a quick break-down of the way NOI is calculated.
Effective Rental Income (ERI)= (Rental Income-Vacancy and Credit Loss)
Once the ERI is calculated, after adding any other income generated by the property we get the Gross Operating Income (GOI)
Gross Operating Income= ERI+ Income from other sources
After getting the GOI value, subtracting the operating costs will give us the NOI of the particular property.
NOI= GOI- Operating costs
From the formula, it can be established that the gross operating income must be greater than the expenses. This means that the vacancy and credit loss from the property must be kept as low as possible. Or if the income from other sources is sufficient to cover for the loses, things can still be on the bright side.
As the above-mentioned process for calculating the NOI of a property is explained through formulas. It can be further broken down into individual components for your ease.
With better understanding of each term, you will be able to predict the outcome of the entire deal. If you are an investor, using market trends to calculate NOI will help you decide whether it is safe to purchase a particular property or not