Real Estate Investing Courses Have Some Critical Numbers You Should Focus On...

Some of best real estate investing courses have always covered these important topics:

Net Operating Income

Net Operating Income is commonly used to analyze real estate investments and it's really very straightforward.

Net Operating Income = Gross Operating Revenue (minus vacancy and collection losses) - Operating Expenses (excluding debt service and taxes)

Now, a few accountants in the room may start tweaking this a little bit to include depreciation and/or Non-Operating income but for most purposes the above formula is accepted as standard. This is the way it's covered in many real estate investing courses.

So in residential real estate investments you determine a property's Net Operating Income by taking the Revenue and subtracting the Expenses.

Revenue will typically be generating by the rent on the property and perhaps any other income (like renting out parking spaces separately or having coin operating laundry machines on site).

And expenses will be things like advertising, insurance, property taxes, maintenance, any property management and utilities (if you are paying for them instead of the tenant).

So if you have a home you are renting out for for $1,650/month and your tenant is paying the utilities your monthly expenses may include things like insurance and property taxes. Let's say that comes to $275/month.

So your annual Net Operating Income would be:

Operating Income..........................$1650 x 12
Operating Expenses........................- $275 x 12
Net Operating Income......................= $16,500/year

Different real estate investing courses will have you can fine tune these numbers with vacancy ratios and other minor expense but the above gives you a quick example of Net Operating Income.

An important note, your debt service (or mortgage payments) are not included in Net Operating Income calculations.

Capitalization Rates

Capitalization Rates are used quite often in larger real estate investments. It's an attempt to look how fast the property will pay for itself. We've spent entire days in real estate investing courses on this topic alone.

In North American the most often used formula for this is:

Net Operating Income / Cost or Value of the Property = Capitalization Rate

Many first time investors search out for properties that have a capitalization rate of 10% or higher. In the most large cities the reality is that for larger investment properties like apartment buildings it's difficult to find anything above 7%.

There is currently a lot of demand for such properties and investors are willing to take 7% or even lower capitalization rates on these.

Here's an example. If a property produces $50,000 in Net Operating Income (or positive cash flow) and the cost of the property was $500,000.

$50,000 / $500,000 = .1 or 10% Capitalization Rate

The property will pay for itself in 10 years.

If you want to read more check out the Wikipedia article on capitalization rates here.

Return from Key Numbers in Real Estate Investing Courses to the Real Estate Investing Guide here.


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