# The Essential Guide to Calculating Net Operating Income

As a Newport News rental property owner, it is essential to learn your net operating income (NOI). This is a key metric used by property owners to evaluate a property’s performance, as well as by banks and other lending institutions. This guide will explain the process of calculating your NOI. We’ll also go over some of the possible influences on this figure.

## What is net operating income (NOI)?

The annual income of a single-family rental property after operating expenses is known as net operating income (NOI). This number includes rental income and also other sources of income, such as laundry or parking fees. It excludes mortgage payments and capital expenditures (such as repairs or renovations).

## How to Calculate NOI.

There are several methods for calculating NOI, but the most common is to subtract a property’s total income from its operating expenses. For instance:

Total Income: \$30,000

(subtract) Operating Expenses: \$15,000

(equals) NOI: \$30,000 – \$15,000 = \$15,000

There are several factors to consider when calculating your NOI. To begin, make a list of all sources of income. This will include rental income and any other fees or charges you receive from tenants (such as pet fees or parking fees). Second, only include operating expenses in your calculations. This includes property taxes, insurance, and maintenance. This figure does not include mortgage payments or capital expenditures (such as renovations).

## Factors that can affect your NOI.

Your NOI is affected by a combination of factors. Some are under your control, while others are not.

Rental income: The amount of rental income you produce will have a direct impact on your NOI. Your NOI will rise if you can elevate rent prices or lease to higher-paying tenants.

Operating expenses: Your operating expenses will rise or fall year to year. Your NOI will increase if you can keep these costs down.

Interest rates: Changes in interest rates can affect your NOI if your rental property is secured by a mortgage. A rise in interest rates will raise your mortgage payments, lowering your NOI.

Vacancy rates: An increase in vacancy rates will reduce rental income and, consequently, net operating income (NOI).

A number of variables can impact your NOI. It is essential to monitor these factors and make adjustments as necessary.

## How to use net operating income (NOI) to make sensible real estate decisions

You can use this info to make intelligent real estate decisions now that you know how to calculate NOI. If you are contemplating the purchase of a rental property, you can use the NOI to determine whether the property represents a good investment. It can also be used to compare different properties and determine which one will provide the best return on investment.

Here are a few examples of how NOI can be put to use:

You’re thinking about spending \$200,000 on a rental property. The property has a \$20,000 NOI. This means the property will yield a \$20,000/\$200,000 return on investment (ROI) of 10%. You decide to buy the property because it has a good ROI.

You own a rental property with a \$15,000 NOI. You are contemplating selling the property and reinvesting the proceeds in a different property. Yet you locate a different property with an NOI of \$30,000. You decide to sell your current property and buy the new one because it will generate a higher return on investment.

You’re hoping about spending \$100,000 on a rental home. The property has a \$15,000 net operating income. You find an additional \$100,000-priced property for sale. Yet this property has a \$25,000 net operating income. You prefer to purchase the second property because it will generate a higher return on investment.

## What’s the bottom line?

The net operating income (NOI) is a useful metric for many Newport News property managers. You can use NOI to make smart real estate decisions and ensure that your rental property is performing as it should be by learning how to calculate it. However, if calculating values like NOI or ROI isn’t your strong suit, consider having the professionals at Real Property Management Complete do it for you. Our local office can help you analyze your specific rental market and give accurate data on your investment property’s profitability and competitiveness. Contact us today to learn more.

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