Definition:

Rental Income is the revenue earned by an individual or business from leasing out property or equipment to another party. This income is typically received on a regular basis, such as monthly or annually, and can include payments for residential, commercial, or industrial properties.

Examples

1. A landlord receives $1,500 per month from a tenant renting an apartment.
2. A company earns $10,000 annually from leasing office space to another business.
3. An individual rents out construction equipment for $200 per day.

Formula:

Rental Income = Total Rent Received - (Operating Expenses + Depreciation + Mortgage Interest)

How to use the metric:

Rental Income is used to assess the profitability of a rental property or portfolio. It helps property owners and investors determine cash flow, evaluate investment performance, and make informed decisions about property management and potential acquisitions.

Limitations:

1. Rental Income can fluctuate due to market conditions, tenant turnover, and changes in demand.
2. It may not account for unexpected expenses such as repairs or legal fees.
3. Depreciation and mortgage interest can complicate the calculation of net rental income.

Applies to:

Rental Income is most applicable in real estate industries, including residential, commercial, and industrial property sectors. It is also relevant for businesses involved in equipment leasing.

Doesn't apply to:

Rental Income does not apply to industries that do not involve leasing or renting assets, such as manufacturing or retail, where revenue is primarily generated from the sale of goods and services rather than rental agreements.

Summary:

Rental Income is a crucial metric for property owners and investors, providing insights into the financial performance of rental properties. While it offers valuable information for decision-making, it is important to consider its limitations and the impact of external factors on rental revenue.