The Little Geeni

I dedicate today’s article on emphasizing the differences between VMware ESXi and VMware ESX. As many of you still believe that VMware ESX is better than VMware ESXi, where another team is still wondering if VMware ESXi is better than VMware ESX. As the two products names & functionality is very similar, they can easily get you confused. I don’t think you should ask which one is better, but which one fit me the best. Keep reading to find out how they different & which one is best suitable for your environment.

The first thing you should ask your self: What are the differences between VMware ESXi server & VMware ESX server?

- The first major difference between ESX & ESXi is that ESXi has no service console, which means that you can’t execute any commands on the local console of the machine like its possible with ESX. Please note there is a smaller subset of commands that can be executed against the ESXi remotely using “Remote CLI”, which is sufficient for most users. To be honest if you are an expert in VMware ESX, then you will know there is a very tiny unsupported console on the ESXi which meant to be only used by VMware support.

- As VMware ESXi has no service console, the size of it shrinks dramatically. In addition it will require way less patching than the normal version. Remember the Service console is running a stripped out version of Redhat which will require way more patches than the VMware kernel it self, so by getting rid of that you can save a lot of the time on getting updates.

- VMware ESXi was originally meant to be distribute as a very small image, which get to be preinstalled by your hardware vendor on a small flash memory drive (or solid state drive as in ESXi 3 the size is less than 32MB & in vSphere its less than 100MB in total. Though now VMware ESXi is available to be installed by the user, as long its supported on your particular server by your Hardware vendor.

- Please note the free VMware ESXi server includes the file system and functionality, VMFS, VMware Virtual SMP (symmetric multiprocessing) – which is the ability to configure more than one virtual CPU per VM, but in order to run advanced functionality such as VMotion, DRS, HA, Storage VMotion, FT you will require an additional license. If you need a basic & reliable Virtualization platform then the free ESXi can do the job for you, & when you decide to grow up & you require more advanced features you will only have to acquire the feature license and enable it in ESXi. In the other hand, VMware ESX has no free version offered & you will have to purchase a license to start using it. Please note the minimum license of VMware ESX has plenty more features than what is enabled on the Free ESXi before adding any license to ESXi. Though you always can obtain a license for the VMware ESXi & run all the features supported by VMware ESX without reinstalling anything.

- Please note when you obtain the free VMware ESXi, it will not include any official support till you obtain a license. This means if you are keeping the free VMware ESXi you will have to depend on the community support till you obtain a license which enable many features as said earlier. Its worth mentioning though the VMware community is very helpful.

So again you might be asking yourself when to use VMware ESXi & when to use VMware ESX?

Which one is the right solution for my environment is it VMware ESXi or VMware ESX?

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All of us know that free cheese can be only in mousetrap, but if it concerns free computer games, then this statement can be argued.  You can find any type of computer games online, but what is more attractive that it is possible to find your favorite games and download them without paying. It is not a cheating.
Today there are a lot of websites which offer computer games of various genres. You can play them alone or with friend. It is also possible to upgrade some of these games. Of course upgrading is not essential feature and it is up to you, but you should know that it doesn’t affect the game; it only gives new more advanced features for the game.
Nowadays computer games serve as a kind of entertainment for people after routine working days. So, if you have a desire to spend some time playing computer game, then you have wide choice of games which you can get free. These are racing games, fighting games, shooting games, arcade games, puzzles, adventures, role-playing games, sports games etc.  Among advantages of free computer games the good quality can be mentioned. You can be lucky to get free computer game of super quality.
Some people don’t trust free online computer games and prefer to buy expensive gaining consoles. It is not true that online games are worse then gaming consoles. You may play these games online with other players from all over the world or you may download then on your computer.

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Net operating income (i.e., NOI) is one of the most important calculations made in regard to any real estate investment because it represents the property’s potential income after all vacancy and operating expenses have been subtracted. In other words, net operating income represents the investment property’s productivity, or measure of cash flow.

To help plant the idea, consider net operating income in one of the following two ways, depending on whether or not a mortgage exists.

The investor pays all cash for the property. In this case, since the investment property has no debt, NOI virtually becomes the rate of return expected from a property for any given annual period before taxes and depreciation are considered. In other words, given no deduction for debt service (loan payment), you can regard net operating income as the annual cash flow (cash flow before taxes, or CFBT).

The investor finances the property. Here, since the property has a mortgage, NOI should be regarded as the anticipated amount of cash flow available to pay the mortgage. In this case, only the remainder of NOI (net operating income less annual loan payment) becomes the annual cash flow before taxes (or CFBT).

How to Calculate Gross Scheduled Income Less Vacancy and Credit Loss = Gross Operating Income Less Operating Expenses* = Net Operating Income

Example: Assume that you want to do an analysis on an income property that generates a GOI of $100,000 with Operating Expenses of $42,000. What is the NOI?

$100,000 Less $42,000 = $58,000

*Mortgage payments, depreciation, and capital expenditures are not considered operating expenses and therefore have no impact on net operating income.

It’s Role in Real Estate Investing

Net operating income plays a large role in a variety of real estate investment and holding period decisions. For instance, capitalization rate (cap rate) is calculated by dividing NOI by sale price. Likewise, property value (or the property’s sale price) is calculated by dividing NOI by the cap rate.

Example: Let’s continue to assume a net operating income of $58,000 (as in our example above) and a sale price of $580,000. What is the property’s capitalization rate?

Net Operating Income Divided by Sale Price = Cap Rate

$58,000 Divided by $580,000 = 10.0%

Okay, now let’s assume an NOI of $58,000 of and a cap rate of 8.0%. What is the property value?

Net Operating Income Divided by Cap Rate = Property Value

$58,000 Divided by 10.0% = $580,000

Net operating income also plays a large role with lenders. For example, Debt Coverage Ratio (DCR) is calculated by dividing the net operating income by loan payment.

Net Operating Income Divided by Annual Loan Payment = Debt Coverage Ratio

$58,000 Divided by $46,000 = 1.26

How Credible Is It?

Conceptually, NOI is important because of its use in numerous calculations surrounding property performance. Because it’s used to estimate property value and cap rate, as well as useful to lenders, NOI has become an essential component of real estate investment analysis. As a real estate investor, therefore, you should understand net operating income, and recognize what it means to your potential investment valuation.

But be careful.

Remember, NOI is not unlike other calculations typically used for real estate investing purposes. The result is only as good as the numbers are credible, and numbers can be manipulated. Sellers have sometimes been known to become very creative in order to make the relationship between the price and NOI to come out right.

So here’s a tip. Whether or not a property appears to have a favorable NOI with positive rates of return, don’t just accept the numbers. Spend the time to validate the numbers. Reconstruct the owner’s representations for income and operating expenses if necessary, and compute your own NOI. Whatever you do, rely on nothing less then the most credible net operating income possible. You can’t afford not to.

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In this article, we want to discuss the role of net operating income to real estate analysis. How it’s calculated and then how real estate analysts use net operating income to determine the profitability of investment real estate.

Net operating income (or NOI) is one of the most important calculations made during the analysis of any real estate investment because it represents the property’s potential income after all vacancy and operating expenses have been subtracted. In other words, net operating income virtually represents the income property’s productivity, or measure of cash flow.

To help plant the idea, let’s consider net operating income in one of the following two ways, depending on whether or not a mortgage exists.

1. The investor pays all cash for the property. Since the property is wholly owned and has no debt, in this case, NOI is the annual return the investor would expect from the property before consideration for taxes and depreciation. Given no deduction for debt service (loan payment), you can regard net operating income in this case as the annual cash flow before taxes (or CFBT).

2. The investor obtains a mortgage. Here, since the property has a mortgage, NOI should be regarded as the anticipated amount of cash flow available to pay the mortgage. In this case, only the remainder of NOI (after you subtract the annual loan payment) becomes the annual cash flow (or CFBT).

Okay, let’s summarize. If you pay all-cash for a rental property, because there are no mortgage payments, NOI by default represents the property’s cash flow. On the other hand, when there are mortgage payments, NOI represents the amount of money available to service the debt, and then, subsequently the cash flow only after the loan payments.

How to Calculate Net Operating Income

Gross Operating Income less Operating Expenses = Net Operating Income

For example, let’s assume you’re doing a real estate analysis on an apartment building that produces a gross operating income of $100,000 and operating expenses of $42,000. What is the NOI?

This should be easy. $100,000 less $42,000 equals $58,000.

Okay, but let’s make sure that you understand both components in the formula.

1) Gross Operating Income (GOI) – This equals the rental property’s annual gross scheduled income less vacancy and credit loss. In other words, GOI is the actual income the rental property is expected to produce.

2) Operating Expense – An operating expense ensures the property’s continued ability to produce income. Whereas such things as property taxes, utilities, and maintenance and repairs are operating expenses, mortgage payments, depreciation, and capital expenditures are not considered operating expenses.

The Role of Net Operating Income

Net operating income plays a large role in a variety of real estate investment and holding period decisions. Capitalization rate, for instance, is calculated by dividing NOI by sale price, and property value is calculated by dividing NOI by capitalization rate.

Likewise, net operating income is significant to lenders. To compute debt coverage ratio (DCR), for instance, net operating income is divided by annual loan payment.

The Credibility of Net Operating Income

Not unlike any component in a real estate analysis, net operating income is only as good as the numbers used to compute it are credible.

Whether you use real estate investment software, a spreadsheet, or pencil and paper for your real estate analysis, you must spend the time to validate the numbers and reconstruct the owner’s representations for income and operating expenses if necessary.

Prudent real estate analysis demands it. Whenever you are running the numbers on any real estate investment, rely on nothing less then the most credible net operating income possible.

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