Net Operating Income (NOI) is a crucial financial metric for evaluating the profitability of income-generating real estate. It represents the annual revenue generated by a property after deducting all operating expenses, but before accounting for mortgage payments, capital expenditures, or depreciation. For example, if a property generates $50,000 in annual rent and incurs $20,000 in operating expenses, its NOI would be $30,000. This metric provides a clear picture of a property’s income-generating potential independent of financing and accounting practices.
Analyzing this key figure allows investors to compare the performance of different properties, assess investment opportunities, and make informed decisions. Historically, a strong NOI has been a reliable indicator of a property’s financial health and potential for appreciation. It serves as a foundation for various real estate valuation methods and plays a significant role in securing financing. A healthy figure contributes to long-term financial stability and facilitates informed investment strategies.