The formula uses two metrics - projected rental income and all expenses. Net operating income is an easy formula for calculating the potential rental revenue from an income-generating property. This article explains why NOI is important when making real estate investment decisions. As a result, some investors consider this to be the most critical metric in real estate investing. However, it helps you compare properties when buying or selling real estate. Net operating income doesn’t use expenses like debt payments, mortgage payments, depreciation, or capital expenditures in the calculation. In other words, net operating income is the difference between how much the property costs to operate and the amount of revenue it generates. You deduct the operating expenses from the gross operating income (GOI) to calculate a property’s potential profitability. The NOI provides valuable data to determine whether to purchase a property, predict potential rental income, or raise rents to boost cash flow. Net operating income (NOI) is a vital real estate profitability metric to help you calculate an investment property’s potential revenue.
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