NOI
 
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NOI

Net Operating Income

The net operating income is the amount of cash flow after deducting the operating expenses from the effective rent. Effective rent is the rent revenue minus any adjustments for rent vacancies. Most lending institutions will use an industry average for the vacancy.

Operating Expenses- the operating expenses can be reported with several variations depending on the preferred method and who is viewing them. This means that many operating expense amounts may be reported as actual or from CMHC’s known and accepted numbers. For example, CMHC numbers for management, staff, maintenance, and a few other expenses may be reported as actual or the acceptable cost of an expense acceptable to CMHC. Representation of these expenses is dependent on many variables and financing will have the final say. CMHC tracks all income & expense historical numbers and distributes these findings. Remember if CMHC believes that their way of representing is the fit format then they are going to use their numbers and change the financing aspects of the transition.  Therefore, it is important to understand the way CMHC calculates their income and expenses. If you understand this, you have just tremendously increased your odds of success from the beginning. Having a full grasp of this process will prevent agreements from falling apart due to financing and save plenty of disappointment for both the seller and the buyer.  

  1. MANAGEMENT FEES- Management fees will vary depending on several variations such as who is going to be managing the building/s and the typical range is between 3.5 & 5.0 percent of the effect rent. It is best to use the actual and understand that a prospective purchaser and/or financing institution including CMHC may adjust up or down depending on their criteria and their observation.  
  2. SUPERINTENDENT- Superintendent Fees will vary from building to building depending on location and size of class. For example, a building with an elevator versus a walk-up under standard conditions will have different fees associated with the building. On average you will find superintendent fees between 350 per door to 450.00 per door depending on the size of the building and the location.
  3. OTHER WAGES- Other wages that are a fixed wage other than the superintendent. Such as superintendent’s assistant, additional cleaner, or other wages.
  4. MAINTENANCE- Maintenance is also another number that can have a large variance and all variances may be correct for any individual. This is an important expense to understand as to how much the actual expense and the amount CMHC or lending institution would like to see and use when they are reviewing the key numbers. 
  5. ELEVATOR- Elevators must have a contract so reporting is straightforward and that is the contract amount and the expiree of the contract. 
  6. WASTE DISPOSAL- Disposal cost will either be included in the taxes or at least partial or third party. It is best to know what the actual is and what new quotes for similar contracting are in the marketplace.
  7. Insurance contracts are non-transferable. You have an opportunity to lower this expense, by acquiring new quotes. 
  8. Net Operating Income- the net operating income is the amount of cash flow after deducting the operating expenses from the effective rent. 
  9. Representation of expenses depends on many variables and financing will have the final say. CMHC tracks all income & expense historical numbers and distributes these findings. Remember if CMHC believes that their way of representing is the fit format, they will use their numbers and change the financing aspects of the transition.  
  10. Therefore, it is so important to understand the way CMHC calculates their income and expenses. If you understand this, you have just tremendously increased your odds of success. Having a full grasp of this process will prevent agreements from falling apart due to inadequate financing and save plenty of disappointment for both the seller and the buyer.  
  11. MANAGEMENT FEES- Management fees will vary depending on several variations such as who is going to be managing the building(s) and a typical range is between 3.5 & 5.0 percent of the effect rent. It is best to use the actual and understand that a prospective purchaser and/or financing institution including CMHC may adjust up or down depending on their criteria and their observation.  
  12. SUPERINTENDENT- Superintendent Fees will vary from building to building depending on location and size of class. For example, a building with an elevator versus a walk-up under standard conditions will have different fees associated with the building. On average you will find superintendent fees between 350 per door to 450.00 per door per year depending on the size of the building and the location.
  13. OTHER WAGES- Other wages that are a fixed wage other than the superintendent. Such as superintendents assistant, additional cleaner or other wages.
  14. LAUNDRY- Laundry may have an expense column and an income column. It is best to double-check for contracts and large repair expenses or even replacement. 
  15. ADVERTISING- Advertising may or may not be a required field.
  16. TAXES- Tax reporting is always the same and that is the most currently released number from the municipality.  
  17. UTILITIES- Utility expenses should be listed independently and current for the past twelve months up to the date of the agreement of purchase and sale. 
  18. OTHER CONTRACTS- Other contracts include any non-transferable, transferable, needed or not needed.
  19. TAXES- Tax reporting is always the same and that is the most currently released number from the municipality.  
  20. OTHER CONTRACTS- Other contracts include any non-transferable, transferable, needed or not needed.
  21. Some of these numbers and categories may have a variance for each different set of eyes viewing them. Equally or even of greater importance is the inclusion of all or a partial list of the above categories. Once you have a complete list and cost for each expense you can adjust according to what you are trying to achieve in your proforma for financing. The best defence is to understand a comprehensive list of categories and acknowledge any absence or missing categories.