Commercial real estate investing isn’t as simple as owning properties and waiting for revenue. There is a lot investors need to know. One important point is understanding net operating income (NOI) in CRE.

Ralph Lee was a new investor but didn’t understand why NOI matters for commercial real estate. Here’s how he learned about NOI and why net operating income is a crucial metric for CRE investors.

Why NOI Matters for Commercial Real Estate Investments

Ralph Lee, a new investor in commercial real estate, mistakenly believed profit and net operating income were the same. But in fact, they are different. Profit considers all the income and expenses, such as mortgages and taxes. On the other hand, NOI is a property’s income after deducting operating expenses.

Why Investors Must Understand Net Operating Income

Having a better grasp of how NOI works will benefit investors in many ways. The following are some benefits of understanding NOI:

1. It can guide you in making a better investment strategy. Like any other investment, you need a sound strategy to have success and grow. Ralph learned that understanding his net operating income can guide him on what steps to take. A high NOI means the property is well-managed, and a low NOI signals that you need to take cost-saving measures.
2. NOI helps analyze the profitability of a property. Knowing your income can help you set your expectations about your business and how to prepare for the financial crisis. It can also indicate the funds you have available for upgrades or new investments.
3. A higher NOI can help with loan considerations. Lenders will be more favorable toward properties with high NOI numbers. It assures your lender that you can make the monthly payments. Good financial numbers can also help you get better terms.
4. NOI helps determine the value of your property. Investors use NOI to calculate the capitalization rate of CRE properties. That can impact the overall investment value of the property.

These are just a few reasons why understanding net operating income can help you become a better investor. Ralph Lee experienced a few challenges but is still grateful for everything he learned.

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

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