Quick answer
Net operating income is the income a rental property produces after operating expenses are subtracted. It is commonly used to evaluate the property's operating performance before mortgage payments, income taxes, depreciation, and financing choices.
NOI is important because it supports cap rate analysis and helps owners compare income-producing properties.
NOI formula
A simple formula is:
Rental income minus vacancy and operating expenses equals net operating income.
The details depend on the assumptions used in the analysis.
Common operating expenses
Operating expenses may include property taxes, insurance, maintenance, repairs, management fees, utilities paid by the owner, HOA dues, and recurring services.
Expense assumptions should be realistic because they can change NOI significantly.
What NOI excludes
NOI usually excludes mortgage payments, income taxes, depreciation, capital reserves, and owner-specific financing.
This separates the property operation from the owner's loan structure.
How owners use NOI
Owners use NOI to compare properties, estimate cap rate, review operating performance, and understand whether expenses are reducing income too heavily.
For a deeper article, see net operating income for a rental property.
Related resources
- Rental Investing Terms category
- What is cap rate?
- What is rental property cash flow?
- What affects rental income?
- Rental Revenue Calculator
Frequently asked questions
Is NOI the same as profit?
No. NOI is an operating metric and may exclude financing, tax, and owner-specific items.
Does NOI include management fees?
Often, yes. Management fees are commonly treated as operating expenses.
Does NOI include mortgage payments?
Usually no. Debt service is typically excluded.
Why does NOI matter?
It helps evaluate property performance and supports cap rate analysis.