What does "net operating income" (NOI) represent?

Net Operating Income (NOI) is a key metric used in real estate to assess the profitability of an income-generating property. It specifically represents the difference between the total income generated from the property and the operating expenses incurred during its operation. This calculation includes all revenue generated from the property, such as rent from tenants and fees for services, while subtracting all regular operating expenses like property management fees, maintenance costs, utilities, and property taxes.

By focusing on operating income and expenses, NOI provides a clear picture of a property's operational performance without the influence of financing costs or taxes, allowing investors to evaluate how well the property is generating income purely from its operations. It is important for investors and property managers as it serves as a baseline indicator for assessing the potential profitability of the asset.

Understanding this definition is crucial for making informed decisions about buying, selling, or managing properties, as it highlights the operational efficiency and income potential of the property.