NOI (Net operating income) is used to determine the profitability of real estate investments.
What is Net Operating Income?
NOI is the abbreviation used most commonly to refer to Net Operating Income, or the income remaining after removing the property’s operating expenses from gross income.
NOI = Gross Income - Operating Expenses
The gross income is all of the rent and fees that you collect from tenants during the year.
Operating expenses are all costs incurred during the year that deal directly with keeping the property operational.
Examples of these include management fees if you have hired property management (this would include fees paid to brokers to lease the space), real estate taxes and insurance, accounting expenses, legal expenses, the cost of any maintenance or repairs done during the year, utilities, etc. If there’s something that gets paid and is necessary to keep the property operating, it is most likely going to be considered an operating expense and thrown under “OpEx” on the income statement.
Typically, you will not hear folks in the real estate industry say “net operating income”, as they would be saying it all the time. Hence the abbreviation.
Over these next few weeks, I will do my best to break down some of the most common lingo used in real estate investing. The more we know about something, the less we fear it. My goal is to bring awareness to everyone about the benefits of real estate investing and passive income, and the best way I can do that is through sharing the knowledge I have acquired during my time investing and representing investors in the commercial real estate space.
As always, please reach out with any and all real estate questions and needs and I will take care of you like family!
Matt Moreland, Realtor® is a real estate agent serving the Lubbock, Texas, and the South Plains. After graduating with a Bachelor of Business Administration in Finance with a concentration in real estate from Texas Tech University, he began practicing real estate full time at McDougal Realtors in Lubbock, Texas. Matt enjoys spending time with his wife and their dog. Some of his hobbies include investing in real estate, elk hunting, backpacking, barbecuing, and playing guitar. To schedule a commitment-free consultation please call 469-744-3610 or fill out this form to get started.
