Net operating income, or NOI, equals a property's total revenue minus its operating expenses, calculated before accounting for debt service, capital expenditures, or income taxes. Revenue typically includes base rent, reimbursements, and any ancillary income such as parking or laundry fees, while operating expenses cover items like property management, insurance, utilities, and routine maintenance.
NOI sits at the center of nearly every other real estate valuation and return metric, from cap rates to debt yield to yield on cost, which is why it is often described as the foundational figure in commercial real estate underwriting. Because NOI excludes financing costs, it allows investors to compare properties on an apples-to-apples basis regardless of how each one happens to be capitalized. A broader look at how NOI feeds into the return metrics investors rely on shows why accurate, conservative NOI projections matter so much to underwriting quality.
Further reading: An Investor's Guide to Real Estate Return Metrics
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