The Inside Guide to Funding Real Estate Investments by Ross Hamilton

Author:Ross Hamilton
Language: eng
Format: epub
Publisher: AMACOM
Published: 2017-03-12T05:00:00+00:00

Net Operating Income

Investors looking for cash flow and the benefits of building wealth through more passive rental income use the net operating income (NOI) formula for determining how much financial leverage makes sense.

Rental properties should support themselves. The conservative investor will never over-leverage into a position of negative cash flow. NOI takes into consideration the expenses you have today—although it is important to remember that rents rise over time, as do expenses.

Tables 22-4 and 22-5 show you the basic gross operating income and net operating income formulas to use when considering purchasing or refinancing a rental property. The formulas are based on monthly numbers: rent minus expenses equals cash flow (excluding mortgage payments).

Table 22-4. Gross income for rentals.

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