# Some Financial Terms

## GSI vs GOI vs NOI

Gross Scheduled Income: Total scheduled income, not considering vacancies

Gross Operating Income:  Total income from rent Not considering expenses

Net Operating Income: Usually shorted as NOI. Total net income after we remove vacancies and all expenses, excluding financing costs and depreciation cost. ( NOI is not the same as taxable income or cash flow of a property). NOI is similar to EBITDA for corporations and it excludes Interest, Corporate-Level Taxes, and Depreciation & Amortization. NOI serves the same purpose as EBITDA: it approximates how much in cash earnings the property can generate.

You have a property with a scheduled gross income of \$100,000, vacancy and credit loss of 5%, and total operating expenses of \$40,000. What is this property’s net operating income? Begin with the gross scheduled income and use that to calculate the dollar amount of the vacancy and credit loss: Vacancy and Credit Loss = 100,000 × .05 = 5000 Now you can calculate the GOI: From this, subtract the operating expenses to determine the NOI:

GOI = \$100000-\$5000=\$95000

NOI = \$95000-\$40000=\$45000

CASH FLOW = Monthly or yearly income – Cash Flow and NOI are the same if you pay all cash

Cash Purchase:

Rent is \$2000/month

Estimate expenses = \$500/month

NOI = 2000 (rent) – 500 (expenses) = \$1500/month = Cash Flow = 1500 (NOI)

Purchase  with mortgage, Principal+Interest payment is \$900/month

Rent is \$2000/month

Estimate expenses = \$500/month

NOI = 2000 (rent) – 500 (expenses) = \$1500/month

Cash Flow = 1500 (NOI) – 900 (Debt Payment)

Cash Flow = \$600/month

Note: For Cap Rate calculation we should always considered the stabilized NOI of a property. Also NOI does not include capital expenditures cost ( example  a new roof) so this will have to be taken into account when buying a property.

### Return on Investment:

Simple ROI = (Investment Gains – Investment Cost) / (Investment cost)
= (1,200,000 – 1,000,000) / (1,000,000)     = 20.0%

But in reality there are costs associated with a property –

So lets make the example more realistic:

\$2,000  Loan origination and loan closing fees
\$8,000  Insurance and RE taxes

\$20,000 Maintenance Costs
\$60,000 Twelve monthly loan payments (\$50,000 interest + \$10,000 principal)

These additional Year-1 costs total \$80,000

We do not include the Amortization ( money toward the principal in the expenses since this money eventually will go to us )

ROI = (Total Gains – Total Investment Costs) / (Total costs)
= (1,200,000 – (1,000,000 + 80,000 ) / (1,080,000)
= 13% approx