Archive Daily Archives: January 7, 2021




Net Operating Income (NOI), the next component of the cash flow statement, is an important gauge of a property’s financial strength.

NOI is:

  • The income from operations that goes to lenders (in the form of debt service) and to owners (in the form of return on investment)
  • A basis for estimating the value of a property (an important consideration for both lenders and owners)
  • A widely used measure of financial health in real estate, even though it is not the same as profit
  • NOI shows how well a property meets its day-too-day operating expenses and how much cash is left over to pay on the loan and the costs of major improvements. NOI thus is a strong indicator that enough money is flowing through the business to meet its obligation.






  • TIPS:
  • RUBS (Ratio Utility Billing System) is a billing method used to recover water, gas, electricity, trash or any other cost involved in the operation of a property. The calculation is based upon one or more factors such as square footage or number of occupants, along with the total utility bill for the property. The charges to the residents will changes each month. An added benefit of this method is that usage normally decreases when residents become responsible for their utility bills.


Two types of vacancies exist:






Physical vacancy consists of any unoccupied units that are available for rent.






Economic Vacancy includes the physical vacancies plus any space that is leased but not producing rent, such as the following.

1. Apartments used as office, as models, or for storage.

2. Apartments provided to staff as part of their compensation.

3. Space that cannot be rented as is the next step in working toward NOI and calculating before-tax cash flow (BTCCF) is to add miscellaneous income and expense reimbursement to the GPI.


Property managers are responsible for identifying and recommending ways to boost revenue and reduce expenses. Be mindful of opportunities to create value for the property and recapture costs. For example:

  • Preferred parking
  • Covered parking
  • Pet rent
  • Cell towers
  • Gym membership
  • Valet trash services



  • In the real world, not all units are rented all of the time. GPI must be adjusted down to reflect market conditions. Determining an accurate adjustment for vacancy and collection loss will depend in part on the real estate manager’s attention to these figures, that is, good record keeping.



  • Cash flow is not just money in movement. It involves planning and a bit of calculation. The first step in computing cash flow is determining the gross potential income. Gross potential income (GPI) is the maximum market rent that can be derived from 100% collection of rents over the course of a financial period (normally, a year).




  • A rent roll is a tool used to identify sources of income. It provides a good picture of a property’s GPI. In a resident property, a rent rolls is a listing of each rental unit described by size and type, rental rates and others payments received.
  • Loss to lease is the amount of money lost due ro rents being less than the maximum market rents, or GPI.
  • For example, consider an apartment building that has 10 leases. In 2013 they all rented at $750. At the start of the 2014, the market rent (GPI) rose to $1000. However, only six of the leases were up for renewal at the start of 2014. Those six rental for $1000. The order four under the old lease continued to rent at $750. As a result, the loss to lease comes out to $250 per month for each of these four leases.