As an investor, you want to predict future profits as well as determine current profit. Understanding how to calculate NOI for your investment property in Georgia is an important step in finding an accurate number to show an investment property’s profitability. In this article, we’ll discuss what NOI is and how to calculate it.
What Is NOI?
NOI is the net operating income on a real estate investment. To determine NOI, an equation of all revenue created by the property, minus all operating expenses for the property, is used: revenue – operating expenses = NOI. The numbers used for NOI are all before taxes.
The first step in calculating NOI is understanding your gross operating income (revenue). To find the gross operating income, subtract credit loss and vacancy from the GPI (gross potential income): GPI – credit loss and income = gross operating income (revenue).
When calculating NOI for your investment property in Georgia, be careful to only include expenses that are of the property itself, not your personal expenses. Let’s look at the main categories to include as expenses when determining NOI.
- Property maintenance
- Property taxes
- Property repairs
- Property utilities
- Property management
Don’t include the following since they are personal rather than property expenses.
- Debt service
- Income taxes
- Mortgage interest
- Tenant wear and tear
- Tenant improvements
Once you have determined income and expenses, you can calculate NOI. Let’s look at an example using numbers.
Rental income: $25,000
Parking Fees: $5,000
Total Revenue = $30,000
Management fees: $3,000
Total Operating Expenses = $10,000
$30,000 – $10,000 = $20,000 NOI
Understanding how to calculate the NOI for your investment property in Georgia is essential in determining what you are gaining or losing from your investment.
When done correctly, investing in a rental property is an excellent choice to increase income and plan for financial freedom. At Excalibur Homes, we understand the needs of the property investor. We were voted “Best in Georgia” because of our excellent service in metro Atlanta property management and all surrounding areas. Contact Excalibur Homes for all your property investment and property management needs.