What is NOI?

One of the many key metrics in commercial real estate would have to be NOI. NOI or Net Operating Income is a metric used by both CRE brokers and investors to determine the annual income generated by an income producing property. Many brokers and investors turn to this metric to help determine a number of other metrics like cap rates according to an article by Property Metrics on the topic.

NOI or Net Operating INcome is a before tax figure calculated by using a number of factors, “insurance, property management fees, utilities, property taxes.”

A rather simple calculation to conduct, determining your property’s NOI requires that you subtract your property’s operating expenses from its gross operating income.

NOI = Gross Operating Income – Opeating Expenses

 

Calculating a NOI can result in two different outcomes, a positive NOI or a negative NOI, both of which can be calculated based on historical data or forward looking data also known as a performa, according to Property Metric‘s article.

A calculation resulting in a positive NOI means that your operating income acutally exceeds gross operating expenses. The opposite can be said about a negative NOI, which means that a negative NOI means that your expenses exceed  your gross operating income.

Knowing the NOI of a property among other metrics like IRR, Cap Rate, and NVP are essential in CRE property investments. For an in-depth analysis of your property check out our IRR Calculator, which can calculate IRRs, Cap Rates, NOIs, and 10-Year Cash Flows.