What is Net Operating Income (NOI)?
Net operating income is a commercial property's annual income after operating expenses but before mortgage payments and income taxes. It is calculated as gross rental income (less vacancy) minus operating costs like taxes, insurance, maintenance, and management. NOI is the foundation for valuing income property and is what cap rate is based on.
Example: A building collects $200,000 in rent and spends $70,000 on operating costs, giving an NOI of $130,000 — the figure a buyer uses to judge value.