Net Operating Income (NOI): Making your property investment in Thailand Worthwhile

Are you thinking about investing in property in Thailand? Well, you’re in for an exciting journey! One important thing to understand is Net Operating Income, or NOI for short. NOI can make your property investment in Thailand worthwhile. In simple terms, it’s the money your property makes after covering all the expenses. Imagine it as the profit you earn from your investment. In this blog post, we’ll break down NOI and share some tips to help you make your investment in Thailand worth it. 

What is Net Operating Income (NOI)?

Net Operating Income measures the profitability of your property investment that generates income. This involves deducting expenses from your property’s income. These expenses include insurance, legal fees, utilities, property taxes, maintenance, and cleaning. NOI calculates your earned profit, cash return, and the expected total return.

Note that NOI doesn’t include loan payments, interest, big expenses, depreciation, and amortization.

Profits Generated by Property

Assume you are a condo owner in Thailand. Profits earned from your condo asset could come from the following:

• Rental Income: Rent collected from tenants on a monthly basis.
• Parking Fees: Revenue earned from parking spaces.
• Laundry service: Income from coin-operated laundry services.

Operating Expenses for Property

Operating expenses are the costs of running and maintaining the property. Which might include the following:

• Property Management Fees: Compensation from property overseeing and managing.
• Utilities: Electricity, water, gas, and other essential services.
• Maintenance & Repairs: Regular care or maintenance along with complete repairs on the property.
• Property Taxes: Annual tax payment to local authorities.
• Premium Insurance: Coverage for possible risks and liabilities.
• Landscaping: Maintenance on the property's exterior appearance.
• Advertising & Marketing: Promotion fees for advertising the property.

Net Operating Formula

Net Operating Income (NOI) = Total Real Estate Revenue - Operating Expenses

Total Real Estate Revenue includes income from rent and amenities. Operating Expenses consist of operational costs such as maintenance, utilities, and property taxes.

Calculation Example

Example 1

Let's say a villa in Phuket has 3 bedrooms and a monthly rental price of 60,000 baht.

• Rental Income: 720,000 baht/year (which is 60,000 baht/month).
• Other income: Assume there is an additional 10,000 baht income from amenities.
• Operating Expenses:
  • Property Management- 15,000 baht/year.
  • Insurance- 5,000 baht/year.
  • Property Taxes- 8,000 baht/year.
  • Utilities- 12,000 baht/year.
  • Repairs & Maintenance- 20,000 baht/year.
  • Other- 5,000 baht/year.

Now, let's bring back the Net Operating Income formula.

Net Operating Income (NOI) = Total Real Estate Revenue - Operating Expenses

NOI = (720,000 + 10,000) - (15,000 + 5,000 + 8,000 + 12,000 + 20,000 + 5,000)

NOI = 730,000 -65,000

NOI = 665,000 baht/year

So, in this case, the Net Operating Income is 665,000 baht/year.

Example 2

Imagine there is a villa in Pattaya with 3 bedrooms and a monthly rental of 52,000 baht.

• Rental Income: 624,000 baht/year (which is 52,000 baht/month).
• No additional income in this case.
• Operating Expenses:
  • Property Management- 15,000 baht/year.
  • Insurance- 5,000 baht/year.
  • Property Taxes- 8,000 baht/year.
  • Utilities- 12,000 baht/year.
  • Repairs & Maintenance- 20,000 baht/year.
  • Other- 5,000 baht/year.

Let's bring back the Net Operating Income formula again.

Net Operating Income (NOI) = Total Real Estate Revenue - Operating Expenses

NOI = (624,000) - (15,000 + 5,000 + 8,000 + 12,000 + 20,000 + 5,000)

NOI = 624,000 -65,000

NOI = 559,000 baht/year

The Pros and Cons of Net Operating Income (NOI)

Pros

• Allows investors to determine a reasonable value for income-generating properties.
• Lets investors know what to expect from ongoing revenue.
• Helps lenders consider whether or not the property is a risky investment.

Cons

• Possible Inconsistencies depending on the property management.
• Negative impact on NOI if projected rents turn out inaccurate.
• Potential incorrect calculation from investors if they overestimate rental revenues.

Bottom Line

By understanding NOI, you can make your investment worthwhile. Remember, NOI shows you the profit you can expect after covering the essential costs. With the right knowledge and strategy, your property investment in Thailand can thrive. So, go out there and explore the opportunities!

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