What does net operating income (NOI) represent?

Net operating income (NOI) is a key financial metric used in real estate to assess the profitability of a property. It represents the actual income generated from a property after all operating expenses have been deducted from effective gross income (EGI). Effective gross income is the total income generated from the property, taking into account various factors such as occupancy rates and rental income, but before operating expenses.

By calculating NOI, property owners and investors can gain insights into the operational performance of their investment without the influence of financing costs, capital expenditures, or taxes. It allows for a clearer comparison between different properties and helps in making informed decisions regarding property management and investment.

The focus on operating income specifically excludes other potential income streams or deductions not directly related to the day-to-day operations of the property, ensuring that the figure reflects the core performance of the real estate asset. This makes it crucial for determining the value and return on investment for real estate properties.