Hey guys can you give me the basic formula/ breakdown of calculating apartments and multi unit deals?
Is it just
Yearly Income - Yearly expenses = NOI
That seems far too simple, Im sure there has to be more to it than that
Also, could someone explain to me what the different types of amortization are?
I have been wondering the same thing for a couple weeks.
I read on this site that if you take 45% off the top of gross income it’s a pretty accurate figure to find expenses.
Dont forget to add your mortgage payment as a negative also though.
I use the “Commercial Property Analyzer” software. Its great. You have to pretty much just take all the income, minus the expenses = NOI - mortage payment = cash flow.
amortization is the term that the mortgage payment is figured upon.
30 year amortization, 20 or 10. could be a 10 year loan with a 30 year amortization.
Yes it is just that simple…yearly income - yearly expenses = NOI.
However, the problem always lies in not estimating the expenses correctly. So going into the deal you expect a certain amount of cashflow but once you actually get into the property, you’re not cashflowing.
Also, if you look to the left there is a glossary that will answer your question about amortization or go to:
http://www.all-about-commercial-mortgages.com/amortization.html
Regards,
Patti Porter
Patti is exactly right. Almost all of the gurus only list a small number of the actual expenses. According to the National Apartment Association, the actual operating expenses (including capital improvements) run between 45% and 50% of the gross rents throughout the US. Through experience, I have found this number to be extremely accurate. So, using this formula, your NOI is 50% to 55% of the gross rents. Simply subtract your mortgage payment from the NOI and you have cash flow.
Good Luck,
Mike
So let me get this straight.
NOI is after you subtract the expenses, which runs from 45-50%, you must then also subtract the debt expenses, which then leaves you with the cash-flow.
Now, that 45-50%, does that include taxes, and everything else, or is that all not included in the estimated 45-50%?
Yes, the 45%-50% includes taxes and all other expenses except the debt service.
Mike
Yes NOI is easy to calculate once you know your expenses.
Expenses should be listed as everything except for Debt Service or LOANS.
So, Taxes, Insurance, Management, water, gas, heat, electric, repairs, advertising, lawn care, accounting costs, etc Are all expenses. When buying a property, be sure to always add to the stated expenses of a property. Sellers always lower the expenses some to make their buildings seem more profitable to potential buyers.
Also don’t forget to figure all the Income streams as well
Rents are just one type.
Laundry units, vending machines, parking, etc all income from the property is in the GOI.
GOI (Gross Operating Income - Operating Expenses) = NOI
NOI / Price = CAP Rate.