Definition: Net operating income is the amount left after a property’s operating expenses are subtracted from its effective gross income. It measures property operations before mortgage debt service and the owner’s income taxes.
Example
A property has $100,000 in effective gross income and $35,000 in operating expenses. Its NOI is $65,000.
Keep the distinction clear
Mortgage principal and interest payments, income taxes, and tax depreciation are not operating expenses in the standard NOI calculation. If a problem already supplies NOI, do not subtract the same operating expenses again.
Related terms
Capitalization Rate (Cap Rate) · Interest · Principal
Keep studying
Income Approach: Net Operating Income, Cap Rate, and Property Value
References: OCC Commercial Real Estate Lending handbook, value analysis
Pronunciation (US): NET OP-uh-ray-ting IN-kum; NOI: en-oh-EYE (capitals show stress)
Pronunciation reference: Merriam-Webster
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