Net Operating Income (NOI) Defined

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
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                      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.