1. What is Net Operating Income (NOI)?

Net Operating Income (NOI) is a key financial metric used in real estate to evaluate the profitability of income-generating properties. It represents the property's potential income after accounting for all necessary operating expenses.

2. How Does the Calculator Work?

The calculator uses the NOI formula:

Where:

• \( \text{Rental Income} \) — Total income from property rentals (USD)
• \( \text{Operating Expenses} \) — All property-related operating costs (USD)

Explanation: NOI measures the property's operating performance before financing costs and income taxes, providing a clear picture of the property's fundamental earning power.

3. Importance of NOI Calculation

Details: NOI is crucial for real estate investors to assess property value, determine cap rates, evaluate investment performance, and make informed buying/selling decisions. It's also used by lenders to evaluate loan applications.

4. Using the Calculator

Tips: Enter rental income and operating expenses in USD. Ensure all values are accurate and include all relevant income and expense items for the property.

5. Frequently Asked Questions (FAQ)

Q1: What is included in operating expenses?
A: Operating expenses typically include property taxes, insurance, maintenance, utilities, property management fees, repairs, and other day-to-day operational costs.

Q2: What is NOT included in NOI calculation?
A: NOI excludes mortgage payments, capital expenditures, depreciation, amortization, and income taxes.

Q3: What is a good NOI for rental properties?
A: A good NOI varies by property type and location, but generally, higher NOI indicates better profitability. Compare NOI to property value to calculate cap rate.

Q4: How is NOI used in property valuation?
A: NOI is used to calculate capitalization rate (cap rate) by dividing NOI by property value, which helps determine property worth and compare investment opportunities.

Q5: Can NOI be negative?
A: Yes, if operating expenses exceed rental income, NOI will be negative, indicating the property is operating at a loss before financing costs.