Net Operating Income (NOI)

Net operating income, or NOI, is a company’s operating income. It is determined by taking a company’s gross income and subtracting operating costs. Operating costs may include taxes, payroll, rent/mortgage, utilities and other related expenses. Typically, NOI is used as an indicator of a company’s value or success in the market. For real estate investors, NOI indicates what return he or she will receive on a particular property. Reducing expenses and/or increasing cash flow is the key to increasing NOI. The net operating income of a company is always a positive number. When expenses are greater than gross income, you have a net operating loss or NOL. Net operating income or loss is used not only to determine an investment’s return but also the debt coverage ratio (DCR). A higher NOI will produce a better DCR, determining whether or not an investment venture can qualify for a commercial loan.