Q & A Saturday – What is NOI for Rentals?

Welcome to our Q & A Saturday video.

In these Q & A Videos we will answer your questions about real estate.  Any real estate related topic from questions about  selling your house, buying a house, real estate investor questions, land lording questions, local market questions and many others things are all fair game. 

Today’s question is “What is NOI for Rentals?

In this video Shaun talks about what the Net Operating Income (NOI) for rental properties.

 

Some of the main points covered in this video are:

1)      What is NOI? = Net Operating Income.

2)      But what exactly does that mean?

3)      Why is it important to know this?

4)      What should you shoot for with your NOI?

 

The Net Operating Income (NOI) for a rental is basically the Net income after taking into account all expenses other than financing costs.  By financing costs this would be the principle and interest payment part of your mortgage payment, not taxes and insurance if those are included in the mortgage payment.  Those two items would be included when calculating the NOI.  For a quick synopsis you take the Gross Rental Income less vacancy and credit losses (i.e. non-payment of an occupied unit) less all of the non finance expenses such as property taxes, home insurance, maintenance and repairs, management, owner paid utilities, other municipal fees, any kind of rental registration fees and then any other expenses that you need to pay for your rental.

Why is this number important?  For commercial sized rentals (Apartment buildings with 5 or more units and any non-residential or mix use building) this number is directly used to determine the value of the property for resale and bank financing.  Obviously in those cases it is a vitally important number since the “Sold Comps” appraisal method used for small properties is not used.

For smaller rentals like condos, single family houses, duplexes, as well as 3-4 unit places.  In these cases the familiar appraisal methods are used so they are not directly used for financing.  However for selling the property to investors the income and expenses will be of paramount importance.  For single unit properties many of the potential buyers will be resident owners and this will not be important but if the property is in a heavy rental area it will be an issue.  It also will be important for anything over 1 unit the person will be at least a partial investor, even an owner occupant in a duplex. 

 

 

Do you need to sell a rental house in Massachusetts or New Hampshire and don’t know what your NOI is?  If you would like to sell your home  fast and hassle free  schedule a consultation  with us today.

 

Hope you enjoyed the video and leave any other questions you have about the topic below or any other topics you would like to see covered in future videos.  I encourage anyone that has things they would like to talk about to let me know what they are.  You can always fill out a contact us form here and put Q & A in the subject, just leave a comment with your questions below here, send an email to info@masshomesale.com, or post it on our Facebook page or Twitter account.

 

Some useful resources:

          Our Video on using The 50% Rule for Rentals.

          All of our posts on Land Lording Topics.

          If you want to sell a house in Massachusetts or in New Hampshire we can help.

 

 

 

 

 

(Image credit: Net Operating Income via Property Metrics)

 

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