InvestingAll terms starting with N
NOI (Net Operating Income)
Also called: net operating income
Income after operating expenses but before debt service, taxes on income, and capital expenditures.
NOI takes gross rental income, subtracts vacancy and operating expenses (management, maintenance, insurance, property taxes, utilities the owner pays) and stops there. Financing is deliberately excluded so the property can be judged independently of the buyer’s loan.
Because the mortgage is excluded, NOI is not cash flow. Two investors with identical NOI can have very different cash flow depending on how they financed the purchase.
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Related terms
- Cap rate (Capitalization rate)Net operating income divided by property value, the unlevered yield used to compare properties.
- Cash flowWhat remains each month after rent has covered operating expenses and debt service.
- Operating expensesThe recurring costs of running a property: taxes, insurance, management, maintenance, and owner-paid utilities.
- DSCR (Debt Service Coverage Ratio)Net operating income divided by annual debt service: how many times the property covers its own loan payment.
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