NOI
Net Operating Income — in real estate, the annual income generated by a property after subtracting operating expenses but before debt service and taxes.
Example
“The apartment building generated $120,000 in rent with $40,000 in expenses, producing $80,000 in NOI.”
Memory Tip
NOI = NET income from OPERATING the property — before the mortgage payment.
Why It Matters
NOI helps property owners and investors understand how much profit a real estate investment actually generates from operations. This metric is essential for evaluating whether a property is a sound investment and comparing it to other potential investments or alternatives.
Common Misconception
Many people confuse NOI with the actual cash they take home, but NOI does not account for mortgage payments, property taxes, or income taxes that reduce the money available to the owner. Someone might think a property with high NOI is profitable without realizing debt payments could eliminate most of that income.
In Practice
Consider an apartment building that generates 200,000 dollars in annual rent but has 60,000 dollars in operating expenses such as maintenance, utilities, and insurance, resulting in an NOI of 140,000 dollars. If the owner has a 100,000 dollar annual mortgage payment on this building, their actual cash flow would only be 40,000 dollars, showing why NOI alone does not tell the complete financial story.
Etymology
Acronym for Net Operating Income.
Common Misspellings
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See Also
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