How is net operating income calculated for a property?
Net operating income (NOI) is property revenue minus operating expenses, before financing costs, income tax and depreciation. Revenue is rent and other income collected or due; operating expenses include rates, insurance, maintenance, management and utilities not recovered.
Formula in words: effective rental income plus other income, minus operating expenses.
It matters because it measures what the property itself earns, independent of how it is financed, so properties can be compared.
Commonly misread:
- Including mortgage interest or capital repayments in operating expenses.
- Leaving out vacancy and bad debt from income.
- Excluding major repairs or treating them inconsistently from period to period.
Define which items count as operating versus capital and apply the same rule to every property in the portfolio.
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