Definition
NOI is the core profitability metric for income-producing properties. It includes all rental income minus vacancy losses, property taxes, insurance, maintenance, and management fees. NOI explicitly excludes financing costs (mortgage) and capital improvements, providing a property-level performance measure independent of how the purchase was financed.
functions Formula
NOI = Gross Rental Income − Vacancy Loss − Operating Expenses
lightbulb Example
A 10-unit apartment building generates $200K gross rent, with 5% vacancy ($10K) and $80K operating expenses. NOI = $200K - $10K - $80K = $110K. At a 7% cap rate, the property is worth $110K/0.07 = $1.57M.
verified_user Key Points
- Core property profitability metric
- Excludes mortgage payments and CapEx
- Used to calculate cap rate
- Independent of financing structure