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CRE Basics: Calculate Net Operating Income (NOI)

Net Operating Income (NOI) is a key metric used in commercial real estate (CRE) investment analysis to measure the amount of money a property generates after operating expenses have been deducted. It measures the property’s financial performance and is used to evaluate the potential return on investment.

Here’s the formula for calculating NOI:

Gross Rental Income – Operating Expenses = NOI

“Gross Rental Income” is the total rental income generated from the property before any expenses have been deducted. “Operating Expenses” include expenses such as property taxes, insurance, maintenance, property management fees, utilities, and common charges (for condos).

For example, if a commercial property generates $100,000 in rental income per year and has operating expenses of $50,000 per year, the NOI would be:

$100,000 – $50,000 = $50,000

The NOI is an important factor in determining the value of commercial property and the potential return on investment for a real estate investor. A higher NOI indicates a more profitable property, while a lower NOI suggests a less profitable property.

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