Net operating income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments.
NOI is one of several indicators used to determine whether or not a subject property will make a good investment.
NOI is also used in the debt coverage ratio, which tells lenders and investors whether a property’s income covers its operating expenses and debt payments.
Formula to calculate NOI.
Operating revenue is the revenue generated from day to day operations of a business.
Operating expenses include salaries and wages, property taxes.
Example:
A shoe making factory’s operating revenue’s value is $3,000. The total operating expenses are $ 600. Calculate the net operating income.
Therefore, the value of the net operating income is $ 2,400.
