We've covered how the Dane County multifamily real estate market has changed, presenting investors with new opportunities that weren't available a few years ago. Due to this clear market shift, we've created a new web site, DaneCountyMarket.com, which we've designed to help Dane County investors with their multifamily real estate goals. We'll be adding more content to our site over the next several weeks, including a multifamily real estate search tool, so please check back often as we round out our site.
One of the tools we'll be adding soon is a glossary of investments terms, and we'll begin by covering these terms one-by-one in our blog. The first investment term that we'll cover is net operating income.
The net operating income (NOI) is the cash flow that remains after a property's operating expenses are subtracted from operating income. NOI is an important investment concept, as it's used as the basis for several other key investment calculations.
Net Operating Income = Operating Income - Operating Expenses
Operating income is the income that results from monthly rents, parking fees, laundry income, parking fees, etc.
Operating expenses are those expenses that are related to the operation of the property, such as taxes, utilities, insurance, maintenance, management fees, payroll and administrative expenses. Note loan payments, amortization and appreciation are not considered operating expenses.
Many times sellers of multifamily real estate publish the net operating income associated with a particular property. As an investor, it's important to know the details behind this number. Specifically:
- Are all operating expenses realistically accounted for in the calculation?
- Is the operating income based on the ideal scenario with a vacancy rate equal to zero? Or is it based on historical performance which accounts for the actual vacancy rate?
Stay tuned. We'll be covering several other key multifamily real estate terms in the near future.
Dan Miller, Realtor, Certified Distressed Property Expert, Keller Williams Realty and DaneCountyMarket.com
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