Net Operating Income (NOI)
Property income minus operating expenses; excludes mortgage payments and taxes.
Key Takeaways
- Start by grasping the core concepts and workflows
- Always verify the most current rules with official authorities
- Seek advice from professionals who specialize in your situation
Overview
Net Operating Income (NOI) is a key measure of a property's profitability before considering financing and income taxes. It represents the income generated from property operations after deducting all operating expenses. NOI is used to calculate the cap rate and is a critical metric for evaluating investment properties.
Calculation
- NOI = Effective Gross Income - Operating Expenses
- Effective Gross Income = Gross Rental Income + Other Income - Vacancy & Credit Loss
- Operating expenses: property management, maintenance, utilities, insurance, taxes
- Does NOT include: mortgage payments, depreciation, income taxes, capital expenditures
Uses of NOI
- Calculate cap rate for property valuation
- Determine debt service coverage ratio
- Compare properties of different sizes
- Analyze operating efficiency
Related Glossary Terms
Frequently Asked Questions
Below we cover the core concepts and how they work in practice in real estate and finance.
No two scenarios are the same, so use this as a starting point. For personalized advice, consult a qualified professional.
Turn to official sources such as the IRS, CRA, HUD, and CFPB for the most accurate and up-to-date information.
This content is for informational and educational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for advice specific to your situation.