The net operating income is the income minus the expenses excluding the mortgage. The NOI is used to help determine the profitability and value of a property. So, the NOI is effectively what the property would be making a person who buys in cash. Here's an example.
Annual Income: $100,000
- Annual Operating Expenses: $45,000
Net Operating Income (NOI): $55,000
The NOI is important if you are thinking about purchasing a property. It will not only give you a sense of what you will be earning but it will also help the bank determine if you can afford the mortgage payments. If you own the property, it's a helpful tool to help determine the value of your asset. Furthermore, you can look to increase the value by increasing the NOI.
This is a continuation of a serious entitled: The Top 10 Terms of Commercial/Investment Real Estate.