Definition
Net operating income (NOI) is gross rental income minus operating expenses (but not debt service). It shows actual operating performance independent of financing.
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NOI is fundamental to real estate analysis because it shows the actual operating performance of a property independent of financing structure. Operating expenses typically include property management fees, maintenance, repairs, insurance, property taxes, and utilities (if owner-paid). Lenders use NOI to calculate cap rates and determine lending amounts.
Pro Tip
Carefully document operating expenses for accurate NOI calculation.
Example
A property with $60,000 gross rental income and $18,000 in operating expenses has NOI of $42,000