NOI = Gross Operating Income – Operating Expenses.The basic formula for calculating NOI is as follows: For that reason, net operating income does not include deductions for debt service or mortgage interest payments, capital expenses, or income taxes paid by the investor.īecause NOI does not include variable factors such as debt service, net operating income is less subject to manipulation based on the amount of leverage used compared to other real estate financial metrics such as cash-on-cash return.īy looking at a property’s current and projected NOI, a real estate investor can gain a better understanding of the potential annual cash flow of an investment compared to the cost of operating the investment. NOI in real estate is used to help predict how profitable a property might be, based solely on the income the investment generates. Net operating income (NOI) in real estate calculates the potential profitability of a rental property by comparing the property’s annual income after operating expenses to the market value or price of the property. NOI is also used in other real estate calculations including cap rate and debt service coverage ratio.NOI is a real estate metric that is difficult to manipulate because the calculation does not include debt service or mortgage interest payments.Different elements used to calculate NOI include potential rental income, vacancy loss, and operating expenses.NOI calculates the current and future potential profitability of a rental property.In this article, we’ll discuss some of the ways to help accurately calculate NOI, and look at real estate calculations that use NOI. NOI is a key financial metric that real estate investors use when analyzing rental property.
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