CALCULATING THE N.O.I. - Arriving at a true Income and Expense statement.
One of the methods used by appraisers when making an appraisal of an income producing property is the income approach. If you attempt to use the same method when valuing a property for purchase, you will be more likely to buy the property at a fair price and you will also be more apt to arrive at a value that will be accepted by a lender. The calculations below are only our opinion of how to value a property. You may allow yourself some leeway, say 5 to 10% more or less, if you so desire.
- Current month's total rent roll, including vacant units at market rent times 12 (results in annual fully occupied total rental income).
- Less at least a 5% vacancy factor (7-10% vacancy factor if in fact the property is 7-10% vacant or more). If the property is fully occupied then subtract a minimum 5% vacancy factor. anyway. If the property is 25% vacant, then subtract 25% from the fully occupied number. This give you the EGI (effective Gross Income).
- Also ADD separately (if any- laundry, storage, parking and vending income).
- this results in TOTAL INCOME or Gross Operating Income (G.O.I.)
[B] OPERATING EXPENSES
- DO NOT INCLUDE depreciation, amortization, interest expense or capital expenditures. Only include actual operating expenses
- Based on a fully rented property, the seller's expenses must include a minimum 5% for Management. It doesn't matter if the seller says he operates the property at no charge. This minimum 5% must be included. Example: A fully rented property brings in a G.O.I. (Gross Operating Income) annually of $220,000 [See A4 above]. Allowing 5% for management is $11,000. The seller does not list management expense at all, so you must add $11,000 as an expense. If he shows $13,000 for management, then use his higher $13,000 number. If he shows only $7,000 for management, then add in $4,000 ( $11,000 less $7,000) to bring it up to a minimum 5%
- Based on a fully rented property, the seller's expenses must include a minimum 5% for Repairs and Maintenance It doesn't matter if the seller says he operates the property at no charge. This minimum 5% must be included. Example: A fully rented property brings in a G.O.I. (Gross Operating Income) annually of $220,000 [See A4 above].. Allowing 5% for Repairs and Maintenance is $11,000. The seller does not list Repairs and Maintenance expense at all, so you must add $11,000 as an expense. If he shows $13,000 for Repairs and Maintenance, then use his higher $13,000 number. If he shows only $7,000 for Repairs and Maintenance, then add in $4,000 ( $11,000 less $7,000) showing it as a reserve of $4,000to bring it up to a minimum of 5%
- Other common expense categories (based on an apartment building-will vary for other income property) Real Estate Taxes, Water and Sewer, Common area utilities, Insurance, Legal and Accounting, Advertising, Telephone, Licenses, Heat (if owner pays), Electricity (if owner pays), Cable TV, Supplies, Elevator expense, Pest control.
- Adding all of the above expenses results in TOTAL EXPENSE
- Total Income less Total Expense equals (N.O.I.) Net Operating Income
[C]AN EXAMPLE OF A PROPERTY VALUATIONA CALCULATION USING THE NET OPERATING INCOME (N.O.I.) APPROACH
- Total Gross Operating Income is $220,000.
- Total expenses are $70,000.
- Therefore the N.O.I. is $150,000.
- If an apartment building, divide $150,000 by .09 (9 cap) which gives a value of $1,666,666.
- If another type of income property, divide $150,000 by .10 (10 cap) which give a value of $1,500,000.
- Use the above valuation, less 5% to 10% as your opening offer.
The above valuations will be your "target" or the maximum amount you will pay for the property. You may make an occasional exception to these calculation rules, but remember to never make the exception the rule. Sticking to the above calculation rules will mean you will rule out some properties; but also remember that if you pay too much you will not be able to get sufficient financing anyway. Most properties eliminated by the N.O.I. valuation rules usually are not priced right for an informed buyer. They are priced right for the seller and his Realtor.
PLEASE CONTACT US TODAY....
If you are interested in buying or refinancing a commercial investment property now or in the near future. Take advantage of our over 40 years of experience securing financing for nationally located multi-family properties, mobile home parks, office buildings, storage facilities, motels and many other types of properties. We do not engage in the financing of residential real estate. Please notice our contact information and minimum loan amounts shown below.
How to Contact Us
Send us an E-mail with some details of your financing request. It is important to send your: Full name, PHONE NUMBER and a paragraph or two describing your financing needs. Please DO NOT forget to include your PHONE NUMBER.
Alternate Phone: 856-429-4951
Call us anytime 24/7. We are available for one-on-one discussion up to 11 PM Eastern Time and on weekends.
BARCLAY ASSOCIATES - Cherry Hill NJ
MINIMUM LOAN AMOUNTS
Copyright © 1997-2016 JS Inc./Barclay Associates-All Rights Reserved
- INCOME PROPERTIES - COMMERCIAL MORTGAGE LOANS- (apartment and office building loans, self storage units, mobile home park financing, strip centers etc. (Not raw land/land developer loans) - $300,000 minimum loan amount. ($375,000 minimum if referred by broker.) Multi-family (apartment buildings) must be 7 units or more.
- RAW LAND LOANS OR LAND DEVELOPMENT LOANS $600,000 minimum loan amount($750,000 minimum if referred by broker).
- SBA LOANS-$300,000 minimum loan amount. ($350,000 minimum if referred by broker).
- OTHER SMALL BUSINESS LOANS (NON SBA)- $300,000 minimum loan amount ($375,000 minimum if referred by broker).
- FACTORING AND ASSET BASED FINANCING These are business loans using accounts receivable, inventory, equipment & real estate as collateral- $600,000 minimum loan amount($700,000 if referred by broker).
- OTHER TYPES OF FINANCING NOT INCLUDED ABOVE - contact us for minimum loan amounts.
BROKERS and other intermediaries- WE WELCOME BROKERS. It is EXTREMELY IMPORTANT that you [CLICK HERE] to obtain full information about our referral fee program and our referral fee rates to brokers.
WHAT WE DO NOT DO:
- We DO NOT finance residential properties-only commercial.
To quickly move around other major areas of our website,
CLICK ON A SUBJECT BELOW:
[Return to Financing Overview Page]
[Commercial Mortgage Loans]
[Real Estate Loan Checklist]
[Income Property Loans over $2 million]
[Doctor, Dentist, Vets]
[Accounts Receivable Financing]
[First Mortgage NOTES]
[Business Plan Writing]
[The Finance Marketplace]
[Small Commercial Mortgage loans]
[SEARCH our site]
[INDEX to Site]
We welcome brokers-for more broker information:
[Brokers Click Here]
[Real Estate Developers]
[Mini storage facilities]
[Mobile home parks]
[Hard Money Loans]
[Raw land loans]
[SBA Mortgage Loans]
[Real Estate Development Loans]
Copyright © 1997-2016 JS Inc./Barclay Associates-All Rights Reserved