NOI (Net Operating Income)
Mapped to core operations, Net Operating Income indicates the basic revenue potential before leverage.
Net Operating Income (NOI)
Net Operating Income evaluates the annual income generated by an investment property, excluding debt service payments and capital expenditures.
Formula
NOI = Gross Operating Income - Operating Expenses
*Note: Operating Expenses include management fees, insurance, property taxes, repairs, and utilities, but NOT mortgage payments or depreciation.*
What this tells you
NOI reflects the pure operations profitability of the property itself. It allows you to analyze and compare properties regardless of the loan or financing terms used to purchase them. A higher NOI indicates a highly efficient, income-producing asset.
How to improve it
- Boost Gross Rents: Adjust lease agreements to market rate and minimize vacancy rates.
- Reduce Operating Costs: Optimize energy efficiency, renegotiate trash or landscaping contracts, and handle preventative maintenance to limit emergency repairs.