Board Topic: NOI Net Operating Income
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Posted by: Joe May 24 2004, 02:32 PM
What is the definition of Net Operating Income? Is it the same as EBITDA? Thanks in advance.

Posted by: loanuniverse May 24 2004, 08:56 PM

Net Operating Income is often cited when dealing with income producing properties. EBITDA is often cited when dealing with operating companies. I guess that at heart both numbers are reflective of the cash flow available for debt service, but are terms usually related to each of the big areas of commercial lending.

NOI = Commercial Real Estate

EBITDA = Corporate

You could also say that the way that you get each of the numbers is different. Calculating NOI starts with revenue {usually in the form of rental income} and then all the deductions are made. Calculating EBITDA is done from the bottom up by adding Interest, Taxes, Depreciation, and Amortization.

Hope this helps.

Posted by: Adam McClure May 30 2004, 11:17 PM
NOI can be done back of the envelope like this: Take the gross pro forma rental income. Multiply by 55%. Amazingly accurate.

To be more rigorous and find out your 5% variance you take the gross rental income (and any other sources like laundry, storage, or parking spare rental) actuals from the prior year and start deducting the following items (not a complete list):

The next year's anticipated vacancy rate (e.g. 6.3%)
Management fees
Maintenance costs
Property Taxes
Collections losses (What, you think you're going to collect every dime your tenants owe you year round?!)

That's your NOI.

My money says you will typically be at 56 or 57% of gross receipts.

What is missing is your debt service payments because that varies dramatically based on how much capital you invest, the terms of financing, and a million other details.

Your net anticipated profit = NOI - debt service - income taxes (factoring in depreciation deductions).

Posted by: loanuniverse May 31 2004, 12:08 PM

While the rough estimate is a good first step, I do not like to use rules of thumb as properties can be considerably different from each other.

You can get more information about how the NOI is calculated by looking at the sensitivity spreadsheet found at:

Real Estate Sensitivity Article

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