NET OPERATING INCOME (NOI) in a 1031 exchange refers to the income generated from the operation of an investment property after deducting all operating expenses such as property taxes, insurance, maintenance, and utilities
Key-Takeaway
- NOI is a crucial factor in determining the value of an investment property.
- The higher the NOI, the more profitable the investment property is considered.
- NOI is used to determine the value of a property in a 1031 exchange, which helps investors determine the exchange options they have.
Example
Let’s say an investor has a rental property generating an annual rental income of $100,000 and has operating expenses of $40,000. The NOI would be $60,000 ($100,000 – $40,000).
Tips
- Make sure to accurately calculate the NOI of a potential investment property.
- Consider the expenses involved in operating the property and factor those into the NOI calculation.
- Consider the market and location of the property when evaluating its potential NOI.
Recommendations
- Consult a professional, such as a real estate agent, to help evaluate the NOI of a potential investment property.
- Work with a qualified intermediary to ensure that the 1031 exchange process is completed accurately and efficiently.