Determining the net operating income (NOI) of a property involves calculating all revenue generated by the property and subtracting all reasonably necessary operating expenses. Revenue typically includes rental income, while operating expenses encompass costs such as property taxes, insurance, maintenance, utilities, and property management fees. For example, a property generating $50,000 in annual rent with $20,000 in annual operating expenses would have a NOI of $30,000.
This figure provides a clear picture of a property’s profitability before considering financing costs and capital expenditures, offering a standardized metric for comparing investment opportunities. Historically, it has been a cornerstone of real estate investment analysis, enabling investors to assess the financial health and potential return of a property objectively. Accurate calculation is crucial for informed decision-making, influencing property valuations, loan applications, and investment strategies.