NOI (Net Operating Income)
The income a property generates after operating expenses but before debt service.
Definition
Net Operating Income is calculated by subtracting all operating expenses from gross operating income. It does not include mortgage payments, capital expenditures, or depreciation.
NOI = Gross Income - Operating Expenses
Example: $36,000 gross rent - $12,000 expenses = $24,000 NOI
Operating Expenses Include
- Property taxes
- Insurance
- Property management fees
- Repairs and maintenance
- Utilities (if landlord-paid)
- Vacancy allowance
Operating Expenses Do NOT Include
- Mortgage payments (principal or interest)
- Capital expenditures
- Depreciation
- Income taxes
Why NOI Matters
NOI is the foundation for calculating cap rate and property valuation. It shows what the property earns independent of how it's financed, making it useful for comparing properties with different loan structures.