NOI

Net Operating Income

1. Effective Rent: This refers to the actual rental income generated by the property after adjusting for vacancies and any other rent concessions or adjustments. It represents the income that the property is effectively earning from its tenants.
2. Operating Expenses: These are the costs associated with operating and maintaining the property, such as property management fees, maintenance and repairs, property taxes, insurance, utilities, and other expenses. Operating expenses are subtracted from the effective rent to determine the property’s net operating income.
3. Net Operating Income (NOI): This is the final figure obtained by subtracting the total operating expenses from the effective rent. NOI represents the cash flow generated by the property before accounting for debt service, capital expenditures, or income taxes

Using industry averages for vacancy rates and other expenses is a common practice among lending institutions when underwriting commercial real estate loans. Expenses can vary depending on factors such as property type, location, market conditions, and property management practices. By using industry averages, lenders aim to standardize their risk assessment process and ensure consistency across different loan applications.

Operating expenses can vary depending on the preferred reporting method and the perspective of the viewer. These expenses may be reported as actual figures or based on known and accepted numbers from organizations like CMHC. CMHC tracks historical income and expense data and distributes findings, influencing financing decisions. Understanding CMHC’s calculation methods is crucial for success, as financing institutions often defer to their figures. Having a clear understanding of this process can prevent financing-related issues, benefiting both buyers and sellers.

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 superintendent’s 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 defense is to understand a comprehensive list of categories and acknowledge any absence or missing categories.