It’s tax season and I’ve been looking at my NOI and comparing it to previous years and it made me curious (& honestly a little angry b/c I know I can do better). I want to throw out a hypothetical scenario and see responses based on your own NOI experience managing your properties. Before we start, NOI is an established calculation and not up to your own interpretation of what it should be (income minus expenses...fyi, mortgage/debt repayment is not included in this calculation). So here’s the hypothetical...if you had roughly $100k in gross rents, what would your NOI be?

Net Operating Income.

(Non Abbreviated, 6 X.)

Bill, yes NOI is a specific calculation, but before we can crank the numbers we'd have to know the expenses that go against that $100K. Are you saying what would my NOI be if I only had $100K in gross rents without accounting for my actual numbers? If yes, I can tell you it would be negative because my gross rents are considerably higher than $100K today, and so are my expenses.

The NOI Calc includes:

Gross Operating Income (GOI) MINUS

- Taxes

- Insurance

- Maintenance **

- Supplies (may be combined with Maint)

- Utilities if provided by LL

- Grounds keeping if provided by LL

- CapEx reserve set-asides

- Property management **

- Legal expenses (evictions, title work, etc)

- Trash service if provided by LL

- HOA dues, if applicable

- Book-keeping & tax prep **

- Office rent, supplies, and other fixed overhead, if applicable

- Vacancy ***

- Misc expenses (phones, printer ink, computers, etc) allocated by percentage to each property/unit

= Net Operating Income

Then you subtract out debt-service, which equals free cash flow (aka Cash on Cash return).

I put "**" behind items that some land lords don't account for or DIY. I'm trying to do a better job of that by "paying" myself a flat rate 10% fee for property management since I self-manage, and if I do any maintenance I pay myself a flat hourly rate of $45. I know that will irk some folks.... I don't care. (wink) I don't do much of my own maint any more.

I put "***" behind Vacancy because in some calculations I see vacancy subtracted from Gross Potential Income (GPI) to arrive at Gross Operating Income (GOI). Others subtract vacancy from GOI. Doesn't really matter to me. Dollars lost to vacancy are dollars lost to vacancy. I typically assume 5% vacancy, which seems to be an industry standard. Adjust as needed for your local market and/or client base.

At the end of the day, I doubt most small time and even many medium sized land lords truly run our numbers like this. I only hear NOI and such figures discussed with multi-unit properties where the high 6 and 7 figure amounts are in play.

The typical ma and pa LL cares about free cash flow. How many $$$s and I keeping each month?

For my mobile home lot rents $100,000 gross nets $70,000.

Bill, so that everyone can talk apples to apples, it may be helpful if each landlord first determined what their PERCENTAGE OF net operating income compared to gross potential rent (revenue). Then once a landlord has figured out his or her NOI percentage, then they can compute what their total net operating income would be if they had $100,000 in gross revenue. I believe that is the number you are looking for.

For example, last I looked at a study by the National Apartment Association, the national average for a landlord's percentage of net operating income for garden apartments was about 61%.

Using Jeffrey's thought, my NOI is about 55%. All of my expenses typically total 45%. It has ranged higher or lower by several points in any given year, but the average is 45% of my rents are consumed by expenses.

This is BEFORE mortgage payment, which should not be included in NOI, but rather included in the Cash on Cash return calculation.

Thank you Sid, Sisco, Jeffrey and others. For the purpose of this discussion, I’m after exactly what Jeffrey detailed in his above post.

It should also be noted that the percentage I mentioned above was taking into account only normal operating expenses and capital expenses is normally not included when calculating NOI. When you add in capital expenses during the year, which actually averaged 9% for the average owner of garden apartments, you have now increased your total expenses for the year to 48% of your revenue.

60.4% for 2016 since 2017 books aren't ready for prime time yet. My list does includes everything on Sid's list except tax prep and bookkeeping since those items are for multiple companies plus personal.