What does Net Operating Income (NOI) represent?

Net Operating Income (NOI) is a critical financial metric in property management and real estate investment that measures a property's profitability. It is specifically defined as the revenue from the property after deducting all operating expenses but before considering financing costs and taxes. The calculation begins with Effective Gross Income, which includes all income streams derived from the property, such as rent and other ancillary income. From this total income, all operating expenses—such as property management fees, maintenance, utilities, insurance, and property taxes—are subtracted.

This means that NOI accurately reflects the property’s income-generating ability while accounting for costs necessary to maintain the operation. It does not consider capital expenditures or financing costs, which makes it a useful tool for property managers and investors to evaluate the operational performance of a property on its own merits. Understanding NOI is essential for making informed decisions regarding property investment, valuation, and management strategies.