What is Net Operating Income?

Posted on June 19, 2019

For the most part, the decision to invest in commercial real estate is based on a property’s ability to generate a steady stream of income for investors. The annual income from tenant rent minus the expenses incurred to operate a property and before the deduction of payments of taxes and financing expenses is referred to as Net Operating Income (NOI). Excluded from NOI are loan payments, depreciation, amortization, or capital expenditures. With this in mind, properties with triple-net-leases, in which tenants are responsible for paying their own operating costs, utilities, maintenance fees, repairs, property taxes and insurance, provides investors with a passive source of income for which their operating expenses will be limited to roof and structural repairs.

NOI is also used to calculate a property’s capitalization rate, which investors use to evaluate properties and the potential rate of return they can expect from their property investment or acquisition. Cap rates are calculated by dividing NOI by the property’s current market value or acquisition price.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.