What is net operating income (NOI)?

Net Operating Income (NOI) is a crucial concept in real estate and property management, as it represents the income generated by a property after all operating expenses are deducted but before accounting for financing and taxes. It essentially gives a clear picture of the profitability of a property by calculating the income available from property operations.

To determine NOI, you start with the total revenue generated from renting or leasing the property and then subtract all the necessary operating expenses, which may include property management fees, maintenance costs, property taxes, insurance, and utilities. The resulting figure is a reflection of the property's operational efficiency and is often used by investors to evaluate the potential return on investment.

Understanding this definition is pivotal, as it forms the foundation for more complex analyses of investment property performance, such as cash flow assessments, property valuation, and investment return calculations. In this context, it becomes clear why this answer accurately captures the essence of what NOI represents in the realm of real estate finance.