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Net Operating Income (NOI)

A Property’s Profit Before Debt Service and Taxes

 

Net Operating Income (NOI) is the income that a property generates after deducting all of its operating expenses. It is a key metric used to evaluate the financial performance of a real estate investment and is calculated by subtracting the property's operating expenses from its gross income.

The gross income of a property includes all of the income it generates from rent, parking fees, laundry, storage, and any other sources of income. The operating expenses include all of the costs associated with operating the property, such as property taxes, insurance, maintenance, repairs, utilities, and management fees.

The formula for calculating Net Operating Income (NOI) is as follows:

NOI = Gross Income - Operating Expenses

For example, if a property generates $100,000 in gross income and has $30,000 in operating expenses, its Net Operating Income would be $70,000 ($100,000 - $30,000).

NOI is an important metric in real estate investing because it is used to determine the property's cash flow and its ability to generate a return on investment. Investors can use NOI to calculate key financial ratios, such as the Capitalization Rate (Cap Rate), which is calculated by dividing the NOI by the property's value or purchase price.

Overall, Net Operating Income is an essential concept in real estate investing and can help investors evaluate the profitability of a property and make informed investment decisions.