How to Determine the Net Operating Income on Real Estate Investment Properties

by David Gerlitz on April 12, 2011

We get A LOT of questions about how to determine the Net Operating Income on real estate investment properties. Net Operating Income, or NOI, is a basic metric for valuing real estate investment properties. Ultimately, it is the amount of cash the property throws off prior to any debt payments or mortgage payments are made. Here is a simple way to figure it out.

How to determine the Net Operating IncomeNet Operating Income, or NOI, is a basic metric for valuing real estate investment properties. Ultimately, it is the amount of cash the property throws off prior to any debt payments or mortgage payments are made.  Here’s a simple way to figure it out.

We start by taking the gross operating income, or the total amount of income the property produces in a year. This can include other income besides rent such as laundry income, parking or cell towers. Then we subtract out all the expenses.

I use an acronym “TIMMUR” to figure out what to subtract. TIMMUR is : taxes, insurance, maintenance, management, utilities and reserves. A lot of people use “repairs” for “R” but I include that in maintenance. That way I don’t forget to include reserves.

Let’s say for example that the gross income from a property is $100,000 and the expenses are $40,000. That makes the net operating income $60,000. Remember, this is before mortgage or debt payments and taxes, but it gives you an idea of value because you know how much cash the property generates in a given year.

Contact Investment Property Colorado today and let the experts help you find the right investment for you.

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