Net Operating Income

Net Operating Income (NOI) is a key financial metric used to assess the profitability of an income-generating property. It represents the total Revenue generated from the property minus all Operating Expenses, excluding mortgage payments and taxes. NOI is crucial for investors and property managers to evaluate the performance of a real estate Asset.

Formula:

NOI = Total Revenue – Operating Expenses

Examples:

• Example 1: A rental property generates $100,000 in rental income annually. Operating Expenses (maintenance, Property Management, insurance) total $30,000. Thus, NOI = $100,000 – $30,000 = $70,000.
• Example 2: A commercial office building earns $500,000 in gross rental income with $200,000 in Operating Expenses. Therefore, NOI = $500,000 – $200,000 = $300,000.

Use Cases:

• Investment Analysis: Investors often use NOI to calculate Capitalization rates (cap rates) to determine the value of a property.
• Financing: Lenders may evaluate NOI when underwriting loans to ensure the property generates sufficient income to cover debt service.