Net Operating Income (NOI)

NOI is the total income a property generates minus all operating expenses, before debt service (mortgage payments).

Formula

NOI = Gross Income - Vacancy - Operating Expenses

Operating Expenses Include

Property taxes
Insurance
Maintenance & repairs
Property management fees
Utilities (if landlord-paid)
HOA fees

Operating Expenses Do NOT Include

Mortgage payments (principal + interest)
Capital expenditures
Depreciation
Income taxes

Why It Matters

NOI is the foundation for calculating cap rate, debt service coverage ratio, and property valuation. It represents the true earning power of a property before financing.