-VA (Vacancy) =EGI (Effective Gross Income) -GOE(Gross Operating Expenses) =NOI (Net Operating Income) -DS (Debt Service) =CF (Cash Flow)
Net Operating Income (NOI) is a key metric in real estate investing that measures the profitability of a property. To calculate NOI, follow these steps: 1. Gather Income: Sum up all the income generated by the property. This typically includes: Rental income from tenants Additional income such as parking fees, laundry facilities, vending machines, etc. 2. Deduct Vacancy Losses: Subtract any potential vacancy losses or uncollected rent. This is an estimate based on historical data or market norms. I use 5% as average if the vacancy rate is less than 5% in that area. If it's higher use the actual number. You can get this information from CMHC website. 3. Calculate Effective Gross Income (EGI) e (EGI): Effective Gross Income is the total income the property generates after accounting for vacancies. It's calculated by subtracting vacancy losses from the total income. 4. Deduct Operating Expenses: Subtract all operating expenses associated with the property. Operating expenses typically include:
• Property management fees • Maintenance and repair • Property taxes • Insurance • Utilities
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