As a commercial real estate investor, you might need to understand a variety of metrics. Net operating income (NOI) is one of the most important. It may sound like technical jargon, but it is actually simple and easy to understand. This post will explain the basics of net operating income and what it means for CRE investments.

Net Operating Income in Commercial Real Estate

What is Net Operating Income (NOI)?

Simply put, net operating income is the difference between a real estate property’s income and operating expenses. It is important for investors because it can help you understand the value of an investment.

Gross Income and Net Income

What’s the difference between gross and net income? Both are ways of measuring income, but they are different. Gross income covers all the revenue a property brings in. Net income is revenue minus operating expenses. Examples of operating expenses are:

• property taxes
• maintenance
• insurance

Rent and Other Income

Rent is the primary source of income for most commercial properties. However, you might have other sources of income. For example, your commercial property might have a vending machine, or you might charge for parking. It is important to account for all revenue sources when calculating NOI.

Calculating NOI

Imagine you have a 500,000-square-meter property in Columbus. Let’s say the property has $180,000 in annual revenue. The property also has $68,000 in annual operating expenses. That would mean your NOI is $180,000 minus the $68,000 for operating expenses. In that case, your NOI is $112,000.

NOI and Profitability

Some might confuse NOI with profitability. While these metrics are related, NOI is not the same as profit. One key difference is that NOI only considers operating expenses. Profits will account for all costs. However, NOI is still important. For example, it can be useful for calculating your cap rate.

NOI is one of the key metrics for real estate investing. It can be especially important when performing due diligence on deals. Understanding this metric can help you value properties and make better decisions.

Are you a commercial real estate investor in the Columbus, GA, area? Click here to contact the Columbus Commercial Team. Our CRE experts can help you find the right properties and close on the deals. Reach out now to learn more about our services.

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