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    Net Operating Income (NOI)

    A property's income after operating expenses but before debt service, income taxes, and capital costs.

    Net operating income, or NOI, is the income a property produces after operating expenses but before mortgage payments, income taxes, and capital expenditures. Start with effective gross income, then subtract expenses like property taxes, insurance, management, utilities, and repairs.

    NOI excludes the mortgage payment on purpose. It measures the property itself, independent of how a particular buyer finances it. That makes NOI the common language lenders and appraisers use to compare deals and set value through a cap rate.

    Because so much rides on NOI, lenders scrutinize the expense assumptions behind it. Understated expenses inflate NOI and value, so underwriters often add back a market management fee and replacement reserves even when the current owner does not.

    Formula
    NOI = Effective Gross Income - Operating Expenses
    Worked Example

    A property collects $500,000 in effective gross income and spends $190,000 on operating expenses. NOI = 500,000 - 190,000 = $310,000. That figure then drives both value and loan sizing.

    Why It Matters

    NOI is the engine behind value, cap rate, DSCR, and debt yield. Move NOI up through higher rents or lower expenses and nearly every metric a lender cares about improves at the same time.

    Related Terms

    Capitalization Rate (Cap Rate)

    The ratio of net operating income to property value, used to gauge return and estimate what a property is worth.

    Debt Service Coverage Ratio (DSCR)

    The ratio of a property's net operating income to its annual debt service, showing how comfortably income covers loan payments.

    Debt Yield

    Net operating income divided by the loan amount, a leverage independent measure of lender risk.

    Replacement Reserves

    Money set aside regularly to fund future capital repairs and replacements at a property.

    Related Programs & Tools

    Property Value CalculatorCap Rate CalculatorCommercial Mortgage

    Looking for another term? Browse the full commercial lending glossary.

    Frequently Asked Questions

    No. NOI is calculated before debt service, so it measures the property on its own, regardless of how any one buyer finances it.

    Underwriters often add a market management fee and replacement reserves, and they may normalize other expenses, so the NOI they use can be lower than the owner's figure.

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