Net Operating Income
Targeted question: What is Net Operating Income (NOI)?
Short answer: Net Operating Income (NOI) is a property’s gross annual rent minus all operating expenses, excluding mortgage payments, depreciation and capital improvements. NOI is the numerator in the Cap Rate formula.
What is Net Operating Income (NOI)?
NOI = Gross Annual Rent − Operating Expenses.
Operating expenses include property taxes, insurance, HOA fees, property management, repairs and maintenance, vacancy allowance and landlord-paid utilities. NOI excludes mortgage principal and interest, depreciation and capital improvements.
NOI is used directly in the Cap Rate formula (Cap Rate = NOI / Purchase Price) and is the industry-standard way to compare the operating performance of rental properties independent of how they are financed.