I promised last week to hit some of the very basics of real estate investing here in Kansas City…or anywhere, for that matter. And while spending a little time on this real estate investing blog over the weekend I noticed that my messages really don’t change. Good market. Didn’t change. Bad market? Didn’t change. Basics are the basics.
On January 29, 2007 I wrote a post titled Net Operating Income – Formula For Success. It’s a short, sweet post about figuring your Net Operating Income. Almost every way imaginable to figuring out whether or not an investment property will make you money or make you lose money is based on a realistic NOI. What is the real income? What are the real (and sometimes un-thought of) expenses to the ownership and operation of the said rental property?
Before we do anything we just need to know what the Net Operating Income of the proposed rental property is going to be. Got it?
Income – expenses = NOI
Income includes rent, parking space rent, coin-operated laundry money, etc. Expenses include lawn maintenance, vacancies, utilities, etc. But expenses does not include debt service. Debt service is something different and will vary from investor to investor making a house affordable for one but not affordable for another. We’ll talk more about that this week.