Net Operating Income

A building has 5 office suites generating annual potential rent of $20,000 each. If the annual vacancy rate is 10% and the annual expenses are $45,000, what is the NOI?

$20,000 per unit x 5 = $100,000 potential gross income. Next, subtract the 10% vacancy rate: $100,000 - $10,000 = $90,000. Then subtract the $45,000 for expenses: $90,000 - $45,000 = $45,000 NOI.

A property generates $490,000 net income and sells at a 7% cap rate. What is its value?

$490,000 ÷ 7% = $7,000,000 value

A property has a net income of $490,000 and sells for $7,000,000. What is its cap rate?

$490,000 ÷ 7,000,000 = .07, or 7%

A property's value is $7,000,000 and the cap rate is 7%. What is the property's Net Operating Income?

$7,000,000 x .07 = $490,000

If gross income on a property is 30,000, net income is $20,000 and the cap rate is 5%, the value of the property using the income capitalization method is $600,000. $400,000. $6,000,000. $4,000,000.

Remember that value is calculated using the NOI of a property, NOT the gross income. Value = NOI / Cap rate. So, Value = $20,000 / 0.05 = $400,000.

A property is being appraised using the income capitalization approach. Annually, it has potential gross income of $30,000, vacancy and credit losses of $1,500, and operating expenses of $10,000. Using a capitalization rate of 9%, what is the indicated value (to the nearest $1,000)? $206,000 $167,000 $222,000 $180,000

Remember the formula for calculating value, Value = NOI / Cap rate. First, determine the net income by subtracting out vacancy and expenses from the potential gross income, $30,000 - 1,500 - 10,000 = $18,500 NOI. Next, divide $18,500 by the capitalization rate, 0.09: $18,500 / 0.09 = $205,555, or $206,000 rounded.

An apartment building has 24 apartments that rent for $500 per month. Vacancy rate is 5% and laundry vending income is $300 per month. Operating expenses equal 40% of potential rent. NOI = Potential Gross Income - Vacancy loss + Other income - Operating expenses Note: Operating Expenses do not include mortgage payments

What is the NOI? Potential Gross Income --$500 X 24 units X 12 months = $144,000 Vacancy --$144,000 x 5% = $7200 Laundry income -- $300 per month X 12 months = $3,600 Effective Gross Income --$144,000 - $7,200 vacancy + Laundry income $3,600 = $140,400 TOTAL Operating Expenses -- $144,000 X 40% = $57,600 Net Operating Income -- Effective Gross Income of $140,400 - Operating Expenses of $57,600 = $82,800