Net Operating Income (NOI)
Net Operating Income (NOI) is the revenue a property generates after deducting all operating expenses.
NOI represents the profitability of a property's operations before considering debt service (mortgage payments) and income taxes. It's a crucial figure in real estate analysis because it isolates the income-generating capacity of the property itself, allowing investors to compare different properties regardless of their financing structures or tax situations. A higher NOI generally indicates a more profitable and desirable investment.
A commercial building generates $100,000 in annual rent. Operating expenses, including property taxes, insurance, and maintenance, total $40,000. The NOI is $100,000 - $40,000 = $60,000.
Remember that NOI is *before* debt service and income taxes. Focus on operating expenses only.
Related Terms
Practice Questions
Related Concepts
The capitalization rate (Cap Rate) is the rate of return on a real estate investment based on its expected income.
In real estate, property value can be estimated by dividing the Net Operating Income (NOI) by the Capitalization Rate (Cap Rate).
IRV stands for Income, Rate, and Value. It represents the relationship between Net Operating Income (I), Capitalization Rate (R), and Property Value (V).
Proration is the process of dividing expenses or income between the buyer and seller at the closing of a real estate transaction. This ensures each party pays or receives only their fair share based on the period of ownership.
Daily rate calculation involves determining the cost or income per day by dividing the total amount by the number of days in the period (usually a year or a month). This is a fundamental step in proration.