ESTIMATING NOI

Part 1 - How Do You Estimate NOI?

In a hurry:

Apply it today:

  • Use NOI to make investment decisions

  • Use NOI to determine loan affordability

 

By the end of this episode you’ll learn:

  • What is Net Operating Income?

  • How do you calculate NOI?

  • What doesn’t NOI account for?

  • How do you apply NOI?

 

Have a few minutes:

 

Net Operating Income is everywhere in commercial real estate. Obviously, it’s used by investors and developers but, believe it or not, it’s also used by lenders and folks in leasing. Given how ubiquitous NOI is, it’s vital that you understand how it is calculated.

 

Think of NOI like the foundation of a building. Everyone relies on the foundation to support everything that goes on above and around it.

 

Many will describe it as the difference between revenues and expenses. While not incorrect in concept, calculating NOI is more than just subtracting a few numbers.

 

It is important to understand the relationships underlying this cornerstone topic and how those relationships impact virtually every decision in commercial real estate. For example, what are the different kinds of vacancy and collection loss allowances and why are they different from one property type to another?

 

This episode is the first of a series that explores how NOI is used in commercial real estate. In this episode, we start off with the basics.

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