Net Operating Income (NOI)
The property's profit before financing costs.
Formula
NOI = Gross Rent − Operating Expenses
Operating expenses include property tax, insurance, maintenance, vacancy reserves, property management, and capex reserves. Mortgage payments are NOT included.
What Is It?
NOI is what the property earns after paying all operating costs but before paying the mortgage. It is the single most important number in commercial real estate — property values are literally calculated from NOI.
Worked Example
A property grosses $3,000/mo. Annual operating expenses total $14,400.
| Annual Gross Rent | $36,000 |
| Property Tax | $6,000 |
| Insurance | $1,750 |
| Maintenance (1%) | $5,000 |
| Vacancy (8%) | $2,880 |
| Mgmt (10%) | $3,600 |
Why It Matters
- ✓Foundation for cap rate calculation (Cap Rate = NOI / Value)
- ✓Determines property value in commercial appraisals
- ✓Increase NOI → increase property value (forced appreciation)
- ✓Comparable across different financing structures
What's Good vs Bad?
Excellent
NOI covers mortgage + leaves $300+/mo cashflow
Good
NOI covers mortgage with small positive cashflow
Poor
NOI less than mortgage payment
Limitations
- ⚠Doesn't include mortgage — so it's not your actual cashflow
- ⚠Sensitive to expense assumptions (garbage in, garbage out)
- ⚠Doesn't capture capex timing (a new roof hits one year, not every year)
- ⚠Different investors may calculate operating expenses differently
How Prop2Profit Uses This Metric
NOI is displayed on every listing's detail page. Prop2Profit uses standard expense assumptions (1.2% tax, 0.35% insurance, 1% maintenance, 8% vacancy, 10% PM, 5% capex) — all customizable in the analysis panel.