Net operating income is used for the purpose of analyzing the income generated from real estate investments.
NOI can be found on cash flow statements and property income. If the end result is negative, then it is called net operating income loss. It can be increased by hiking the rental payment or by decreasing operating expenses. Operating expenses are insurance, property management fees, utilities, property taxes and repairs.
NOI is non-taxable income and it helps in calculating cap rate, ratios like debt coverage ratio (DCR) which t
ls whether the property income includes debt and operating expenses or not. It measures the ability of income generation of a property. Lease analysis is the initial step to analyze how income is generated; it helps out the investors as it indicates both who has paid as well as the source.
DC Fawcett Reviews further explains how to calculate NOI.
Potential rental income- vacancy and credit loss = effective rental income
Effective rental income +other income =gross operating income
Gross operating income – operating expenses = net operating income
Net operating income is positive when operating income exceeds gross operating income.
Lets breakdown the formula of real estate
- Potential rental income is also known as PRI is cumulative of rental payments if occupied entirely. If not, market based rents is used.
- Vacancy and credit loss means income lost due to renters vacating the property or when they don’t pay their rent every month.
- Effective rental income is the amount that the seller /owner gets in hand
- Other income refers to laundry, parking etc.
- Gross operating income is sum of all income generated from a property.
- Operating expenses include personal and property taxes, insurance, management fee etc.
Net operating income doesn’t include the following expenses
- Debt: financing powers remains with owner /investor.
- Depreciation: accounting entry alone so excluded
- Home improvements: These changes are done according to tenant’s wish. So charges are not taken while calculating NOI.
- Commission is paid to brokers and agents
- Amount is allocated for repair and renovation work. Those funds are excluded.
- Capital expenses are also part of repair work; it may happen in irregular interval.
NOI is used to
- Measure the profit of an investment
- Calculate underlying cash flows
Fake loan scam is a typical scam where scammers pretend to call from a renowned bank and say they offer a loan, some may get attracted and say yes meaning they are willing to avail the loan. You will know it’s a scam, when the amount deposited is with a low rate of interest.
You can take help of the real estate professionals, tax advisors to calculate NOI for your property.
DC Fawcett Real Estate Tips – Methods Of Profit Earning
Real estate market helps the investors to earn profit in several ways. DC Fawcett, the founder of virtual real estate investing club has stated his reviews on how to earn profit. Let’s have a look at it.
Inflation in value
The property is considered to be an asset, it can appreciate in its value only if it is sold or refinanced. Refinancing can be calculated using mortgage.
Purchasing a raw land and constructing buildings on it. If the land possesses mineral content, it adds value to the land.
Location and furnishing
The location is one of the striking factors; the property value depends on the area in which you purchase the property. So having a land in the heart of the city with all basic facilities in the surrounding will attract the buyers. The value can be further increased if your property is renovated and furnished at proper intervals.
Commercial investment and lease
Investing on commercial property fetches more profit than any other type of investment. Many startups and organizations are in need of space, giving out for lease will gain you profit steadily.
Types of income
Renting is the easiest way to gain profit but you can be a way ahead by splitting the apartment into different rooms which can fetch you more rent.
REIT and MIC
REIT and MIC are firms which owns, manage and represent real estate market. REIT provide source of income to commercial property owners whereas MIC acts as the source of funding for mortgage.
Under market value
Investing in properties having under market value can earn you good gains in addition to that if you possess negotiation skills.
House flipping may either hit or flop , refer DC Fawcett blog to know more about house flipping strategies on virtual wholesaling.
Fore closured areas
Lenders may sell the non-performing notes (fore closured properties) to investors at discount rate, but it involves lot of risk. You can proceed if you are confident in paying the debt, title fee etc and make the property free from fore closure which the borrower failed to.
Find an undervalued home under contract; assign a buyer who has to find another buyer who is willing to pay more than the (undervalued) price which is almost similar to the job of a real estate agent.
Real estate brokerage
This is for real estate agents who want to level up in his career. You can become a broker and appoint few agents under you in which half of the commission is all yours. You can also run property Management Company, buying a vacation property, becoming a home inspector, investing in short sales.
DC Fawcett Real Estate – Tips On Saving Money For A House
Purchasing a property is not an easy task; it requires lot of time and huge amount of savings. DC Fawcett Real Estate reviews on how to save money in order to purchase a property. They are as follows.
Mortgage plays a vital role while saving money for your house. The investor must know how much he/she can afford before applying loan. In order to make accurate calculations, investors can approach tax advisors.
Credit points and other payments
If the credit points are high, interest rates will be low. Down payments are essential since 20% of the deposit should be paid to the lender by the borrower, failing to do so, he /she will be asked to pay private mortgage insurance (PMI). Along with the down payments, the closing cost and title fees requires huge amount of savings. Hence, the purchaser must start allocating money for these payments before buying a house.
Cultivate the habit of maintaining monthly budget; make a note of trivial expenses and cut down on unwanted expenses that are pushing forward the dreams of buying a house. Try to save on your electricity bills, restaurant bills, vacation and other leisure activities.
Creating account for savings
Maintain a separate account in your bank for saving money for the house. This will help you to track down how much you need more. Also don’t use any money for your personal purpose or emergency. While you are saving money for your down payment and closing cost, the capital can fetch you good amount of interest which is sufficient for future to make repair work etc. you can also make savings automatic by contacting your payroll department to make fixed deposit every payday. In case, you get any bonus, don’t spend instead transfer to this special savings account so the dreams of purchasing a house becomes easier.
In case you live in a rented 2 or 3 bedroom apartment which cost you more and you feel luxurious for a small family, try to move to a smaller house which will help you to reduce your rental expenses.
Working in part time
In case you have more idle time, you can work overtime or join part time jobs which will fetch you more money.
While saving money, make sure you prevent from scam going around.
Credit card scam: Scammers obtain your credit card information by installing spyware and other methods.
Fake loan scam: Amount deposited with low interest rate
Phishing: This scam is very tough to even find out since they make use of official logos and create havoc to your bank account, send emails to your official mail address.
DC Fawcett Reviews – Overview on risks of overpricing Method
To earn profit in a short span of time, overpricing is not a good strategy in real estate. Every seller should set the right price as every property falls into a particular market value range. If sold at right price, the buyers will make an offer else it will remain in the market unsold for long period of time.
Dc Fawcett Reviews – The risks of overpricing a property which is as follows
Buyers lose interest on your property since they can judge that property has been overpriced as investors can make use of real estate blogs to know about the ongoing scenario and trends in the market. In return, you get a low offer for an overpriced property and you also eliminate the buyers who might be interested on your property.
Real estate agents are the first one to get price listing right after the property is on sale. Once he makes a realistic pricing, he will not offer you a deal with lower price, similarly if he overprice, it is clear that the buyer must ask a drop in the price. Negotiations are must when you deal with a real estate agent in order to save money from your pocket. Since the agents know about the property value, it is the buyer duty to make a proper assessment before purchasing a property. Many agents give an inflated estimation to the buyers; make sure you appoint ethical agents who can give the best estimates.
Listing services provide information about how long the property is on sale, if buyers notice that the property is unsold for long period of time, it creates a suspicion that something is wrong.
The price is determined finally by the seller, so the real estate agent or the purchaser cannot determine it. The returns don’t have any impact on market value. The market value is chosen to be the price the purchaser is willing to pay.
- Overpricing creates an illusion that market is down, so they have overpriced it to earn huge profit.
It is must that the property should not be priced more than 20% of the selling price. Purchasers can research and make comparisons before they make an offer considering the factors like resale value, accommodation features.
Beware and not bargain, as buyers may turn down your offer. If the house is unsold for a long time, cleanliness and maintenance takes a backseat.
The seller must keep in mind that the buyers not only have a look on his/her property alone, he visits several other properties and can judge if it’s priced rightly or overpriced.
New laws have been enacted that if a property is overpriced; it will neither appreciate in its value nor will be eligible for loan.
Overpricing is considered to be a scam actually as realtors aren’t supposed to price their property more than the market value. In case you are looking out for a property and want to have an idea about pricing, DC Fawcett, founder of the virtual real estate investing club has written blogs on overpricing, investors can have a look at it before purchasing a property.
To know more about Net operating income, visit DC Fawcett virtual real estate investing club where several blogs has been written for the new investors. Virtual wholesaling is also recommended for new investors as it doesn’t involve money and no risk involved.