Net operating income (NOI)
National Real Estate Exam glossary · Valuation
Definition
The income a property produces after operating expenses but before debt service and income taxes: effective gross income less operating expenses. Crucially, operating expenses exclude mortgage payments, income tax, and depreciation; NOI is the figure capitalized in the income approach.
Net operating income (NOI) in plain English
Net operating income is basically a property's yearly profit from just being a rental, before you subtract the loan and taxes on your own income. You take all the rent and other money the property actually brings in, then subtract the everyday costs of running it (upkeep, property taxes, insurance, management) — what's left is the NOI. On purpose, you do NOT subtract the mortgage payment, your personal income taxes, or "depreciation" (a paper deduction), because NOI measures the building itself, not your particular loan or tax situation. This is the key number investors use to judge and value income properties: a bigger NOI generally means a more valuable property.
Also called: NOI
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