We’re going to keep today’s blog post pretty simple!  You want to understand what net income is as it relates to real estate investing.   The reality is that there’s a really simple formula for you to follow and if you read all the way to the very end you’ll find out another name for net income that most of the real asset investing experts that I know commonly use.

So what is net income? At the end of the day, net income is actually the money that you have left once all of the other expenses are paid, like the actual cash that you can spend or that you can use to reinvest in your company. In its simplest form it’s the money that you have when all other expenses are paid. That’s it! Don’t overthink it, don’t overcomplicate it.

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But how do you get to that point of finding out the net income? Let’s walk through the steps together.  First of all, you have all of the different revenue sources that are coming into your rental property or your multifamily building. Once you have all of your revenue that comes in, then you have to think about all of the different operating expenses that go out of your building. Think about things like maintenance and repair. Think of things like paying your taxes, think about the insurance that you pay on your property and a number of other things. And that brings you to your net operating income, or you’re NOI. Once you have that, if you’re fortunate enough, then you don’t have anything else. If you’re using leverage, which we talk about a lot, then you are going to get a mortgage or you’re going to use debt service, something that we’ve also talked about in the past.

Once you take away that debt service from the net operating income, then you get to your net income.  Since you made it this far you’re going to learn a little secret that many people don’t know…  The net income is also known as your cash after debt service or CADS.  It’s really simple, I don’t want to overthink it. I don’t want you to overthink getting to net income for your rental properties or your rental complex. That’s really what it is and I’m sure that this is going to help you a lot. 

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That’s my two cents for today. As always, hasta la próxima.

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