NOI stands for NET OPERATING INCOME.
To get to NOI, you must first start with the Gross Income (rentals, laundry, etc) minus % for Vacancy which leaves the Adjusted Gross Income. Taking this number, you then apply the operating expenses (i.e. - Management, Maintenance, repairs, utilities, reserves, etc) which leaves you with your Net Operating Income. (i.e.-Income before Mortgage Debt)
Below find a brief numerical example...
GOI - $100,000
Vacancy - 10% - ($10,000)
ADJ GOI - $90,000
OP EXP - ($45,000)
NOI - $45,000
Now the rule of thumb throughout the industry (especially in Northeast Ohio) is 10% capitalization rate of NOI.
In this case that would make the above example property worth approx. $450,000
Now depending on factors such as location, condition, types of units (1 Bdrm, 2 Bdrm, etc) this CAP RATE scenario needs to be flexible... Such as a 9% scenario which places value at approx. $500,000 and thus the mirror image at 11% CAP RATE places the value at approx. $410,000.
Now, other options exist when looking at investment property, especially multi-family, such as comparables, GRM and price per unit, but for now I digress and we will discuss some of those options in the near future.
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