Calculating Net Operating Income

We will discuss Net Operating Income first because this number plays an important part from the very beginning of the loan process. Net Operating Income, or NOI, is determined by subtracting vacancies and operating expenses from a property's gross income.

Operating expenses include the following items: advertising, insurance, maintenance, property taxes, property management, repairs, supplies, utilities, etc. the more information you include, the more accurate your calculation will be. The CRES Solutions CD offers you easy-to-use software that list all of the information you will need to obtain from your prospective client in order to calculate the NOI. With a little practice, you can learn to input this information right into the software to help you qualify your prospective client during the initial telephone contact.

While more information is better when figuring the NOI, be sure not to include anything that is not an operating expense. Operating expenses do not include improvements such as a new roof, personal property like a lawn mower, mortgage payments, income taxes, capital gains taxes or loan origination fees.

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