--- title: "Net Operating Income (NOI) | Altss Glossary" description: "Net operating income (NOI) is a property's operating income, rent and other property revenue less vacancy, credit loss and property operating expenses,…" canonical: "https://altss.com/glossary/net-operating-income" --- Glossary · Underwriting metric # Net Operating Income (NOI) Also called: property NOI Net operating income (NOI) is a property's operating income, rent and other property revenue less vacancy, credit loss and property operating expenses, measured before debt service, capital expenditure, depreciation and income taxes. Publisher: Altss LLCContent modified 2026-10-01 ALTSS-RE-011 NOI answers one question: how much cash does the building itself earn from operations in a year? It counts the rent actually collectable and other property income, subtracts the costs of running the property, and stops there. Mortgage payments, the owner's tax position and major capital projects are left out, so two buildings can be compared regardless of how they are financed or owned. ## Formula ### Effective gross income and NOI ``` EGI = gross potential rent − vacancy and credit loss + other income; NOI = EGI − operating expenses ``` `GPR` gross potential rent: rent the property would earn if fully let at contract rents (and market rent for vacant space) `VCL` vacancy and credit loss: rent lost to empty space, free-rent periods and tenants who do not pay `OI` other income: parking, storage, fees, and recoveries of operating costs billed to tenants under their leases `OpEx` property operating expenses: property taxes, insurance, utilities, repairs and maintenance, cleaning and security, property management fee, non-recoverable service costs INREV's glossary defines NOI as a property's gross operating income for the period less operating expenses, for the operating portfolio rather than (re)development assets. Practice varies on capital items: analysts commonly keep capital expenditure, tenant improvements and leasing commissions below NOI and deduct them to reach net cash flow; some deduct a recurring capital reserve inside NOI. State the convention. ## What is in and what is out **Inside NOI**: rental income after vacancy, concessions and bad debt; expense recoveries from tenants; other property income; property-level operating costs, including a property management fee. **Outside NOI**: interest and principal on loans; depreciation and amortisation; owner-level income taxes; fund or asset management fees charged to investors; capital expenditure, tenant improvements and leasing commissions (usually); one-off items such as lease termination payments or insurance settlements, which analysts typically adjust out. Leaving financing out is what makes NOI the starting point for comparing properties, valuing them and sizing loans. ## Which NOI: bases and timing - **In-place or current run-rate**: today's leases and costs, annualised. - **Trailing twelve months (T12)**: actual results for the past year. - **Forward or budget**: the next twelve months' projection. - **Stabilised or pro forma**: projected NOI once a business plan is complete, used in [value-add](https://altss.com/glossary/value-add-real-estate) and development underwriting. - **Cash vs straight-line**: accounting rules spread rent increases and free-rent periods evenly over a lease; cash NOI uses rent actually due in the period. Published REIT figures may use either. A cap rate or [debt yield](https://altss.com/glossary/debt-yield) is only comparable with another if both use the same NOI basis. ## How NOI is used - **Valuation**: value = NOI / cap rate under direct capitalisation; NOI projections drive a discounted cash flow. - **Lending**: lenders size loans with [DSCR](https://altss.com/glossary/dscr-debt-service-coverage-ratio) (NOI or net cash flow over debt service) and debt yield (NOI over loan). - **Performance**: NOI growth separates operating improvement from changes in market pricing; listed REITs report same-store NOI, on the properties held throughout both periods compared, to strip out acquisitions and sales. - **Development and value-add**: stabilised NOI over total cost gives yield on cost. ## Lease structure changes what NOI contains Under a gross lease the landlord pays operating costs out of a higher rent. Under a net lease the tenant pays or reimburses some or all of them; in a triple net lease the tenant bears taxes, insurance and maintenance, and NOI is close to the rent. Two buildings with the same NOI can therefore have very different gross rents and cost exposure, and reported operating margins are not comparable across lease types. ## NOI, EBITDA and FFO NOI is property-level, so it excludes corporate overhead. EBITDA is company-level and deducts general and administrative costs. FFO, used for REITs, starts from net income and so reflects interest and corporate costs while adding back real estate depreciation. Companies and lenders that report NOI define it in their own documents, so read the definition before comparing figures. ## Worked examples ### Illustrative apartment building, from rent roll to NOI An apartment building has gross potential rent of $2m. Vacancy and credit loss is $100,000 and other income (parking, fees, utility recoveries) is $50,000, so effective gross income is **$1.95m**. Operating expenses, including property taxes, insurance, repairs and a management fee, are $750,000. NOI is **$1.2m**. Mortgage interest and principal, depreciation, income taxes and the $60,000 the owner sets aside each year for capital replacements are not deducted; after the reserve, net cash flow before debt service would be $1.14m. ### From NOI to value If comparable buildings trade at a 6.0% [cap rate](https://altss.com/glossary/cap-rate), the building's NOI of $1.2m implies a value of **$20.0m**. Each $1 of recurring NOI is worth about $16.67 at that cap rate, which is why errors in NOI are expensive. Examples are illustrative; figures are not market data. ## Not the same as - EBITDA: EBITDA is a company-level measure after corporate overhead; NOI is property-level and excludes it. - Funds From Operations: FFO is a REIT company measure that reflects interest and corporate costs; NOI is before financing and overhead. - Cash-on-Cash Return: Cash-on-cash starts from NOI, deducts debt service and capital items, and divides by the equity invested. ## Common mistakes - Deducting mortgage payments. Debt service is below NOI. - Deducting depreciation. It is an accounting charge, not an operating cost. - Comparing NOI after a capital reserve with NOI before one. - Using pro forma or stabilised NOI and describing the resulting cap rate as in-place. - Leaving out a management fee for a self-managed property, which overstates NOI relative to the market. - Including one-off income such as lease termination fees in run-rate NOI. ## Edge cases - Hotels, senior housing and other operating properties report NOI after operator costs and commonly after a reserve for furniture and equipment; their NOI moves with occupancy and pricing day to day. - A vacant or partly built property can have negative NOI; cap-rate valuation does not work on it. - The European Association for Investors in Non-Listed Real Estate Vehicles (INREV) excludes assets under (re)development from its NOI definition and reports them separately. ## Questions ### Does NOI include mortgage payments? No. NOI is measured before debt service, so it is the same however the property is financed. Cash flow to equity is NOI less debt service and capital items. ### Is NOI the same as cash flow? No. Cash flow before debt service also deducts capital expenditure, tenant improvements and leasing commissions, and cash flow to equity also deducts debt service. ## External standards | Standard | Relation | Note | | --- | --- | --- | | Global Definitions Database (D0209 Net Operating Income (NOI) (INREV)) | equivalent | | ## Sources - [Global Definitions Database (GDD)](https://www.inrev.org/definitions/EN/all). INREV (hosted); entries attributed to INREV, NCREIF or NCREIF PREA, Per-entry versions and dates (entries opened 2026-10-01). Status: current (checked 2026-10-01). D0209 Net Operating Income; D0972 Capitalization (Cap) Rate — supports: NOI definition and exclusion of (re)development assets; cap rate as NOI over value ## Related terms 3 terms - [Cap Rate (Capitalization Rate)](https://altss.com/glossary/cap-rate) - [Debt Service Coverage Ratio (DSCR)](https://altss.com/glossary/dscr-debt-service-coverage-ratio) - [Debt Yield](https://altss.com/glossary/debt-yield) ## Referenced by 3 terms - [Core-Plus Real Estate](https://altss.com/glossary/core-plus-real-estate) - [Core Real Estate](https://altss.com/glossary/core-real-estate) - [Value-Add Real Estate](https://altss.com/glossary/value-add-real-estate) ## Concept record Concept ID ALTSS-RE-011 Classification Underwriting metric Topics Real estate Version 2.0.0 Last reviewed 2026-10-01 Structured data [JSON](https://altss.com/reference/concepts/net-operating-income.json) ## Canonical URL https://altss.com/glossary/net-operating-income