What is NOI in real estate?

Net Operating Income is a property's operating income less its operating expenses, before debt service, capital expenditure, tax and depreciation. It measures operating profitability independent of financing.

How is NOI calculated?

NOI = operating income (rent, recoverable service charges, other property income) minus operating expenses (management, maintenance, insurance, non-recoverable costs). Debt service and capex are not deducted.

What does NOI exclude?

NOI excludes mortgage or loan payments (debt service), capital expenditure, income tax and depreciation. Deducting any of these is a common error that understates NOI and breaks portfolio comparability.

Is a higher NOI always better?

A higher or rising NOI usually reflects better cost control, occupancy or rent growth, but the more useful signal is the trend and the NOI margin over time rather than an absolute figure.

Reference

What is NOI (Net Operating Income) in real estate?

Net Operating Income is the cleanest read on how a property earns from operations. Here is the formula, a worked example, and the mistakes to avoid.

What NOI is

Net Operating Income (NOI) is a property's total operating income less its operating expenses, before financing and capital costs. It is the cleanest read on how well a property earns from operations, independent of how it is financed or taxed.

NOI = Operating income − Operating expenses

Operating income is rent plus recoverable service charges and other property income. Operating expenses are the day-to-day running costs — management, maintenance, insurance, non-recoverable service charges. Crucially, NOI excludes debt service (mortgage payments), capital expenditure, tax and depreciation.

A worked example

Take a building with CHF 1,200,000 of gross rental income and CHF 60,000 of other property income, so CHF 1,260,000 of operating income. Operating expenses — management, maintenance, insurance and non-recoverable costs — total CHF 380,000.

NOI = 1,260,000 − 380,000 = CHF 880,000

That CHF 880,000 is the property's operating profit. Note what we did not subtract: the mortgage, any refurbishment capex, or tax. Those belong to separate measures.

Why it matters, and what people get wrong

NOI drives valuation (via the cap rate), feeds debt metrics such as the Debt Service Coverage Ratio, and is the basis for like-for-like performance comparison across a portfolio. The most common mistakes are subtracting debt service or capex (which understates NOI and breaks comparability) and mixing recoverable and non-recoverable costs.

There is no universal "good" NOI — the signal is the trend and the margin. A rising NOI, or a stable NOI margin as the portfolio grows, usually reflects good cost control and leasing. For the wider set of measures, see the key metrics guide or the glossary.

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