Net Operating Income (NOI) is a measure of profitability used in real estate and business accounting. It is calculated by subtracting operating expenses from the gross operating income of an income-producing property or business. The formula for calculating NOI is:
Net Operating Income = Gross Operating Income - Operating Expenses
Gross Operating Income is the total revenue generated by the property or business, while Operating Expenses include all expenses incurred in operating the property or business, such as property taxes, insurance, maintenance, and utilities.
NOI is a useful metric for analyzing the profitability of an investment property or business, as it provides a standardized measure of profitability that can be used to compare different properties or businesses. However, it does not account for some potential costs, such as income taxes or mortgage amortization. NOI is also used in the capitalization rate calculation, where it is divided by the market value of the property to arrive at the implied cap rate.
