Investing in real estate means being introduced to a series of new terms which you will soon be using nearly every day. It’s nothing more than industry “lingo” and while at first new terminology sounds intimidating it really isn’t once you’ve made a few calculations on your own. When first evaluating a noi and cash flowpotential investment, you calculate NOI and Cash Flow using basic information from the property’s listing on the internet or with a property information flyer.

NOI. Net Operating Income. NOI is the amount of funds left over after subtracting annual income and expenses and it’s very simple. Income – Expenses = NOI. The income is the amount of rent received each year and should be listed on the property’s brochure or MLS. If not, you can easily find market rents for the area online. Annual expenses include items such as property taxes, maintenance fees, utilities and homeowner’s insurance. If income is $24,000 and expenses add up to $8,000, NOI is $24,000 -$8,000 = $12,000.

Cash Flow. Cash Flow is the amount of net proceeds each month when subtracting the mortgage payments if financed. If there is no mortgage on the property and you paid cash then Cash Flow and NOI are the same. Cash Flow = NOI – Debt Service. If the NOI is $12,000 and debt service from the loan is $6,000 then Cash Flow is $6,000 per year, or $500 per month.

These two initial calculations are easy to figure and are a quick way to see whether or not a possible deal needs further evaluation. If either of these are negative it’s time to pass and find another property. You need net income and you need positive cash flow each month for a successful investment. After a few of these, you’ll be able to do these things in less than a minute each time.