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Real Estate · Income

Net Operating Income

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Use NOI to isolate property operating performance before debt service, taxes, and owner-specific financing.

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Annual operating income

Gross Operating Income−Operating Expenses

$220,000 gross operating income minus $70,000 expenses leaves $150,000 NOI.

Step 1 of 3

Variables and units

  • Gross Operating Income

    Income before operating expenses.

    currency

  • Operating Expenses

    Operating expenses.

    currency

Common mistakes

  • Subtracting mortgage payments as operating expenses.
  • Mixing monthly expenses with annual income.

Step-by-step example

Annual operating income

  1. 1. Start with the example inputs

    • Gross Operating Income$220,000
    • Operating Expenses$70,000

  2. 2. Apply the formula

    Gross Operating Income−Operating Expenses

  3. 3. Run the numbers

    $150,000.00

    $220,000 gross operating income minus $70,000 expenses leaves $150,000 NOI.

What this result means

Net operating income of $150,000.00 is what the property earns in a year after operating expenses but before any mortgage payments or income taxes. It is the engine behind value: appraisers and lenders divide NOI by a market cap rate to estimate what the property is worth, so small NOI changes move valuations meaningfully.