Calculating NOI - Net Operating Income

What is NOI (Net Operating Income) and what do you need it for?

Suppose you found an investor who might lend you his private money to buy a house, but you're a poor starving student and only make $400/mo working part-time at Starbucks. The first thing he'll ask you when you tell him that you found a house you like is, "What is its NOI?" So here is how you calculate it for him to look intelligent:
Say this house has 4 bedrooms and you're going to live in one and rent the other 3 rooms to your friends for $400 each.
3 X 400 = 1,200 - that's your estimated gross monthly income. Muliply it by Vacancy Rate.

How to calculate Vacancy Rate

You plan to rent 3 rooms in your house, which means in a year, with zero vacancies you'd be renting 36 rooms. If you estimate that a couple of people might leave and it might take you a month to find another roommate for each room, you divide 2 by 36 = .0555 (or times 100 = 5.5% ) - this is your vacancy rate.
1,200 X .055 = 66 - estimated average vacancy in $ per month
To get back to the NOI:
Subtract the estimated vacancy, monthly tax, the estimated insurance (call insurance company and get a quote), the estimated utilities (call utility company to get an estimate or use information from a friend who owns a house in the area), and the maintenance/management cost (which probably won't be much, since you'll do it yourself, but you still need to take into consideration cleaning supplies, occasional repairs or replacements of things that break) and multiply it by 12 months:
( 1,200 - 66 - 100 - 60 - 200 - 40 ) X 12 = 734 X 12 = 8,808
Is this good? I'd say that it is a good NOI. If the house is in a move-in condition, the investor will be very interested in doing a deal with you. So, for example, if the house costs $100,000 and the investor lends your the money at 7% interest rate, your monthly payment to him would be $665. So not only you live there for free, but make a profit of $69/month.

After a year or two you can refinance for lower interest rate with a regular bank. All that income from the roommates is counted by a bank and is called a boarder income. That way you can remain a happy starving student working only a couple of days a week (but you should work for at least 2 years in the same line of work to have a bank be okay with your income).