Definition
Net operating income is a property's income after operating expenses but before debt service and taxes.
How It Works
NOI equals gross rental income minus operating expenses such as management, maintenance, insurance, and property tax. It excludes mortgage payments, income tax, and capital expenditures, isolating the property's operating performance.
Example
A building with $150,000 of rental income and $60,000 of operating expenses has $90,000 of NOI.
Who It Applies To
Real estate investors and lenders evaluating income properties.
Watch-Outs
NOI excludes financing and capital costs, so two investors with the same NOI can have very different cash flow depending on their debt.
