Network Operating Income
The more information you have, the more confidence you can place in your estimate of the market value of your property. Except in unusual circumstances, the market value should be set in the upper limits.
Important questions to understand:
- Will the property generate adequate cost flow?
- Will the property appreciate at an above-average rate?
- Will you be able to increase the value of the property through select improvements?
In real estate, net operating income is defined as annual gross potential rental income from a property less vacancy and collection losses, operating expenses, replacement reserves, property taxes, and property and liability insurance. Here’s how a net income statement might look for an eight-unit apartment building where each apartment has a current market rent level of $725 a month:
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