What is the formula used to calculate the Net Income Ratio (NIR)?

The formula used to calculate the Net Income Ratio (NIR) is indeed Net Operating Income (NOI) divided by Effective Gross Income (EGI). This ratio provides insight into how much of the total income generated from a property is retained as net operating income after accounting for all operating expenses but before financing and taxation.

Using NOI in the numerator reflects the property's ability to generate income after costs associated with operating the property are considered. EGI, which includes gross rental income after accounting for vacancies and collection losses, represents the total income the property can generate in an operational context. The NIR, therefore, offers a measure of operational efficiency, with a higher ratio indicating that a larger proportion of the property’s income is being converted to net income.

This ratio is particularly useful for investors and property managers in assessing how well a property is performing in terms of income generation relative to its potential gross income. Understanding this formula helps evaluate the financial health and operational performance of real estate assets.