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What is GPI and NOI

by | Aug 5, 2020

What is GPI and NOI? If you are interested in using skip tracing, NOI is the most important number you can come up with. When talking about fix and flip disasters, the biggest one is when a real estate investor does not have a back-up plan. That is where GPI and NOI come in.

What is GPI and NOI

It may help to first answer the question: What is GPI. In short, GPI stands for Gross Potential Income. It is the maximum amount of money you can expect to collect off a given property. It is a number you need to calculate on a yearly basis if you continue to hold your properties.

Calculating GPI is easy. Just take the maximum amount you can charge for the property and multiply it by twelve. Let us say you have a quad and you rent each apartment for $650. That would give you $2,600. If each apartment is rented for an entire year, you would collect $31,200.

What is VAC

With your GPI in hand, you need to figure out your VAC. VAC stands for Vacancy Loss. Most rentals have vacancies, and those naturally lead to a loss in your income. Most investors figure their vacancy loss at 5%. GPI X 5% (or your own estimated vacancy rate) = VAC

What is EGI

EGI is your effective gross income. You get this number by subtracting your VAC from your GPI. In other words: GPI-VAC=EGI. Continuing with our previous example, $31,200-$1,560= $29,640.

What is OI

OI is any other income you have coming in from your property. This could mean slot machines in certain areas and coin operated washers and driers. They could also mean parking fees, storage fees,  application fees, and any other income the property might generate. You add that amount to your EGI to get your GOI, or gross operating income. Let us say you make $500 a month in OI. In our example, that would be $29,640+$6,000=$35,640.

What is OE

OE is your operating expenses. These include maintenance workers, lawn care, managers, advertising, and all other expenses you pay to keep your property running at maximum capacity. It is easy for beginning real estate investors to forget about details like operating expenses. It is also easy to underestimate what they might be.

When you are looking at a property, the seller should give you their OE. However, it is best to add another 5% to that number. Therefore, if they say the OE is $5,000 a year, it is best to estimate it at $5,150 to $5,250 until you are sure what it will be under your new management.

What is NOI

NOI stands for Net Operating Income. That is the amount of profit you stand to make on each of your properties. By subtracting your OE from your GOI, you get your NOI. Let us say your GOI is $35,640, and your OE is $5,250. $35,640-$5,250=$30,390. That means your net operating income, before your mortgage payment, is $30,390.

Unfortunately, only experience can teach you some aspects of the real estate business. Not everyone who starts investing goes in with an eye toward the biggest problems landlords face. However, there are times when you may find yourself stuck holding onto a property. When that happens, it is helpful to know the GPI and the NOI. These numbers can also help you to sell the property down the road.

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