NOI (Net Operating Income)
Net operating income is a property's annual revenue minus operating expenses — taxes, insurance, utilities, management, repairs — before loan payments, income taxes, depreciation, and capital expenditures. NOI is the foundation of commercial real estate underwriting: it drives value (via cap rate), loan size (via DSCR and debt yield), and deal comparisons.
NOI = Effective Gross Income − Operating ExpensesLenders re-underwrite NOI rather than accepting the owner's figure: they apply a vacancy allowance even for fully occupied buildings, add a management fee even for self-managed properties, and may use market rents instead of above-market leases.
Small NOI changes move value significantly. At a 6% cap rate, every $10,000 of additional NOI adds roughly $167,000 of property value.
A building collecting $900,000 in rent with $340,000 of operating expenses has an NOI of $560,000.