Net Operating Income
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Key Takeaways
- NOI represents total property revenue minus operating expenses, excluding financing and capital costs.
- Operating expenses include property taxes, maintenance, insurance, utilities, and management fees, but exclude debt service, depreciation, and capital expenditures.
- NOI is a widely used operating performance metric in real estate that helps determine a property's potential value and investment return and serves as an input into cap rate calculations and loan underwriting.
What is Net Operating Income?
Net Operating Income (NOI) is the income remaining after deducting all necessary operating expenses from a property's total revenue. It excludes mortgage payments, depreciation, and capital expenditures.
Total revenue typically includes rental income, fees from additional services like parking or laundry facilities, and other income a property generates. Operating expenses include property taxes, maintenance costs, insurance, property management fees, and utilities.
Why is NOI important in real estate?
Investors and lenders use NOI to assess a property's cash flow potential and financial performance. NOI also serves as a direct input into cap rate calculation and is a key metric in credit and underwriting decisions.