Wealth Formula Nation,
As promised, I present to you the first weekly wealth widget. For some of you, most of these emails will be review. However, if you give a quick glance to each one every week, you might learn something. We are going to start very basic.
Let’s talk about the term Net Operating Income. This is also referred to some of us real estate investors as NOI. Net Operating Income, is one of the most important things to look at when evaluation real estate. It’s really just a fancy label for the net income produced by a property: Revenue minus expenses=NOI.
Specifically, NOI refers to the net income if there is no loan on the property. In other words, the number is the net income without debt (a mortgage).
As real estate investors, we are very concerned with NOI because it tells us about the current performance of a property. Real estate should be bought with most consideration of actual NOI (last few years of financials). You may also see a proforma NOI on a typical broker offering memorandum or create one yourself based on what you think can be done with the property. However, a proforma is a projection and not what is currently true. Although these can be useful to predict how to reposition an asset later on, the most important question is–what is the current NOI?
We will build on this concept more next week. Please let me know if this is helpful. The goal is to slowly but surely get everyone speaking the same language.