When it comes to establishing a park’s NOI, or net operating income, the equation is not as complex as you may think. It requires figuring out your revenue streams and itemizing them. Then, you iron out all of your expenses, or GL codes, and itemize them. You put all your GL’s in, and allocate accordingly.
These expenses include taxes, insurances, repairs and maintenance, utilities, things of that sort. Juxtaposing the bottom line of these categories brings you to your NOI. Though it’s not as complex of a figure, there is some considerable nuance when it comes to managing these figures. Learn more below.
Why Revenues Are So Important
Let’s start with revenues. In my opinion, you have to look at them in at least two different ways. First, you’ll want to request the PNL, or the trailing 12 PNL, from the park owner when evaluating. But let’s say it’s only halfway into the year. An owner may not have their 2022 PNL yet, and may present you with the previous year’s records. This means their revenue stream won’t be as accurate, but it’s highly unlikely that his revenues are the same now as they were in December 2021.
In this case, you can request a rent roll. This will show what each individual unit is paying in rents. One column will show the PNL. For the sake of the example, let’s say it shows $100,000 as the revenue stream from lot renters. But if there was a rent increase notice in Febraury of this year. As a result, now he has $115,00 of revenue. It wouldn’t be fair to not credit him with that additional revenue. It not being reflected on the PNL due to timing is not an excuse to disregard the increased gross if it is in fact valid.
Creating Line Items Is Your Best Bet
It’s good to line item each revenue stream. First, you’ll note the lot rents from tenant owned homes. Next, remember that you’ll leave the take aways from park owned homes off of the list. If there are RV lots, they’ll need to be included.
Utility revenues are another factor to include. Sellers will often provide things like water or sewer to the tenant, while also charging them. That’s because the seller is buying the water from city, and as such, billing tenants accordingly to cover the charge. The same goes for electric, etc. Take each of these streams into full account to paint a full picture of proceedings. You may also include collection losses, though it’s not always a constant in each deal.
The MHP Expert
Now that you have your gross revenue, it’s time to look at expenses. Revisit the opening paragraph for the list of typical expenses to keep track of. Itemizing these by line is again your best bet. From there subtract the total expenses from the total revenues, and you have your NOI. Have more questions for the MHP Expert? Head over to our services page to learn more!