MONTREAL Real Estate Investors Group

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What is revenue property in Montreal? What does it mean? The meaning revenue in the dictionary says: Yield from property or investment; income. We mean cashflow. Cashflow meaning what is left over once all the variables are subtracted off of the balance sheet. Let us look at what determines cashflow:

First we must look at INCOME: Income is rent, parking, laundry, or other sources. Other sources could be a billboard or renting out the garage. This is called the “Gross Operating Income”, or GOI.

Because the income fluctuates with renters and advertisers coming and going, we subtract an amount for vacancy loss. Most professionals use 5%+ depending on the area. When subtracted from the Gross Operating Income, we are left with the “Effective Gross Income”, EGI.

Second we must look at EXPENSES: Expenses are maintenance, taxes, utilities (heat, electricity, water), insurance, possibly management fees and of course miscellaneous items that pop up.

By adding up all of the above, you have the “Total Operating Expenses”, TOE.

To determine the cashflow of the revenue property you must do the math: By taking the “Effective Gross Income”, EGI and minus the “Total Operating Expenses”, TOE you are left with the “Net Opporating Income”, NOI.

The last step to calculate is the “Annual Debt Service”, ADS, which is the yearly sum of all your mortgage payments.

Now we have our formula:
Cashflow = NOI- ADS

This entry was posted on Wednesday, April 5th, 2006 at 3:02 pm and is filed under Home Buying, Real Estate Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.