Net Operating Income (NOI) Definition
Define NOI in Simple Terms
Net Operating Income, or NOI, is a valuation method used by real-estate owners to determine the value of their income-generating properties.
NOI is calculated by taking the total revenue of a property and subtracting all reasonably necessary operating expenses.
The formula for net operating income is as follows:
Where “RR”is real-state revenues, and “OE”is operating expenses.
Sources of revenue included in the NOI calculation may include rental income, parking structures, vending machines, and laundry facilities.
Operating expenses include the cost of maintaining and operating the building, including insurance, legal fees, and utilities.
For financed properties, NOI is also used to calculate the debt coverage ratio, or DCR, which tells lenders and investors whether or not a property is generating enough income to cover its debts and expense payments.
Net Operating Income (NOI) Definition FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.