Operating Income (NOI) in real estate:

Net operating income (NOI) is a financial metric used to assess the profitability of income-generating real estate investments. It is calculated by taking the total revenue of a property and subtracting all reasonably necessary operating expenses.
In simple terms, NOI tells you how much money a property generates after covering its operating costs. It is a useful metric for investors to compare different investment properties and make informed decisions about where to allocate their capital.

How to Calculate NOI

The formula for calculating NOI is as follows:
Net Operating Income (NOI) = Total Revenue – Operating Expenses
Total Revenue
Total revenue includes all income generated by the property, such as rent, parking fees, laundry services, and storage rentals.
Operating Expenses

Operating expenses include the costs associated with running and maintaining the property, such as:

Property taxes
Property management fees

What is a Good NOI?

A good NOI depends on a number of factors, including the type of property, the location, and the current market conditions. However, in general, a higher NOI is considered to be better.
As a general rule of thumb, an NOI of 15% or higher is considered to be good. However, it is important to note that this is just a general guideline and the specific requirements for a good NOI will vary depending on the specific property and market conditions.
What are the Uses of NOI?
NOI has several important uses in real estate, including:
Property valuation: NOI is often used by real estate appraisers to estimate the value of a property. By dividing the NOI by the capitalization rate (cap rate), one can determine a property’s value more precisely.

Investment analysis: Investors use NOI to assess the profitability of potential real estate investments. By comparing the property’s NOI to its purchase price, they can make informed decisions about whether the investment is viable.

Lending decisions: Lenders rely on NOI to determine whether they should lend money to a borrower for a rental property. A higher NOI increases the likelihood of loan approval, as it signifies the property’s ability to generate sufficient cash flow.

How to Improve NOI

There are a number of things that investors can do to improve the NOI of their rental properties, including:
Reduce operating expenses: Investors can reduce their operating expenses by negotiating lower rates with vendors, implementing energy-efficiency measures, and performing regular maintenance and repairs.

Increase rent: Investors can increase their NOI by increasing the rent they charge their tenants. However, it is important to do this in a way that is fair and does not alienate current tenants.

Find additional income streams: Investors can also increase their NOI by finding additional income streams, such as charging for parking or laundry services.

NOI is a valuable metric that can help investors make informed decisions about their real estate investments. By understanding how to calculate NOI and the factors that can affect it, investors can improve their chances of success in the real estate market.