Understanding Multifamily Lingo : “Net Operating Income VS. Net Ordinary Income”Apr 24, 2020
What's the difference between Net Operating Income and a Net Operating Income?
What's the difference between the net operating income and the net ordinary income?
Well, technically, nothing, but you have to understand what you're defining here. When you say net operating income, you're talking about a multifamily property - NOI. When you're talking about a net ordinary income, you're talking about every other business.
So, a net operating income is unique to multifamily. And net ordinary income is not - it talks about every other company. What happens is, when you become experts in multifamily financial statements and when a broker sends you the documentation, you're going to be able to look at it right away and know whether you've got a good report or something that is one step above a cocktail napkin.
And the easiest way to do it, is to look at the income, the expenses and the line that says net ordinary income. If the financial statement that they're giving you does not say net operating income but instead it says net ordinary income, you know that they are not using a property management accounting software program. That means that the numbers are not well reported numbers for that particular property.
When you see net ordinary income, you're probably looking at a QuickBooks report. You can tell that it's a QuickBooks report by looking up in the top right hand corner - or it might be the left hand corner - where it tells you what basis the information is being reported on, a cash basis or an accrual basis. If you see that statement in the header of the report, then you know you're looking at a QuickBooks report.
So, the point here is, look for net operating income. When you see NOI on the financial statements, you know you're dealing with some good numbers or a well reported numbers. When you see net ordinary income, you know you're not dealing with a property management system, and the system is not tracking the leases. It's not tracking the term end dates and it's not doing all of those things that a property management software program does or should do.