Net Operating Income (NOI): Real Estate Cash Flow Metric | Investment Glossary

What You Will Learn: You'll understand how NOI measures a property's core cash flow by calculating revenue minus operating expenses. Learn what's included and excluded in NOI, why it's the foundation of real estate valuation, and how it enables comparison across different property types.

Definition

Net Operating Income is the fundamental measure of a property's cash flow, representing the income generated from operations before debt service and capital expenditures.

Formula

NOI = Gross Revenue - Operating Expenses

What's Included

Gross Revenue:

Rent
Parking fees
Laundry income
Late fees
Ancillary income

Operating Expenses:

Property taxes
Insurance
Utilities
Maintenance
Management fees
Marketing

What's Excluded

Mortgage payments
Capital improvements
Depreciation
Income taxes

Why It Matters

Pure Operating Performance

Shows how well the property generates cash independent of financing

Valuation Foundation

Used to calculate cap rates and determine property values

Comparable Analysis

Enables apples-to-apples comparison across different properties

Predictive Power

Consistent NOI growth indicates strong fundamentals and pricing power

Example Calculation

Gross Annual Revenue: $200,000

Property Taxes: ($30,000)

Insurance: ($8,000)

Utilities: ($12,000)

Maintenance & Repairs: ($15,000)

Management Fees: ($10,000)

Marketing: ($5,000)

Net Operating Income: $120,000

Real-World Context

In the manufactured housing sector, NOI has demonstrated remarkable stability. Since 2000, MHC properties have historically never experienced a negative NOI year—a record historically unmatched by other commercial real estate sectors.* This consistency reflects the essential nature of housing demand and the limited supply of new manufactured housing communities. *Past performance does not guarantee future results.

Investor Takeaway

When evaluating real estate investments, prioritize assets with demonstrated NOI stability and growth. A property's ability to grow NOI consistently through various market cycles is the strongest predictor of long-term investment success.

Net Operating Income (NOI)