Net operating income (NOI) is a measure of a property’s profitability before financing and taxes. It is calculated by subtracting operating expenses from gross operating income.
Operating expenses include all expenses associated with running the property, such as:
- Property taxes
- Insurance
- Utilities
- Maintenance and repairs
- Property management fees
Gross operating income is the total revenue generated by the property, including:
- Rental income
- Parking fees
- Laundry income
- Vending machine income
To calculate NOI, use the following formula:
NOI = Gross operating income – Operating expenses
For example, let’s say a property has the following revenue and expenses:
- Rental income: $100,000
- Parking fees: $5,000
- Laundry income: $2,000
- Vending machine income: $1,000
- Property taxes: $15,000
- Insurance: $3,000
- Utilities: $10,000
- Maintenance and repairs: $5,000
- Property management fees: $5,000
The property’s gross operating income would be $113,000 ($100,000 + $5,000 + $2,000 + $1,000). The property’s operating expenses would be $33,000 ($15,000 + $3,000 + $10,000 + $5,000 + $5,000).
The property’s NOI would be $80,000 ($113,000 – $33,000).
NOI is an important metric for investors to consider when evaluating potential investment properties. It provides a good indication of the property’s cash flow potential. Investors can use NOI to compare different properties and to track the performance of their investments over time.
