NOI (Net Operating Income)

Definition

Net Operating Income (NOI) is the annual income generated by a property after deducting all operating expenses but before accounting for debt payments, capital expenditures, depreciation, and income taxes. It is the core metric for valuing commercial real estate and feeds cap rates, cash-on-cash return, and debt service coverage ratios. For small bay properties, NOI starts with gross rental income, adds other income (late fees, parking, pet or storage fees where applicable), then subtracts operating expenses such as property taxes, insurance, management fees, repairs, and any landlord-paid utilities. In NNN buildings much of the expense load sits with tenants, so the landlord's NOI is closer to collected rent minus vacancy, credit loss, and residual landlord costs.

Formula

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