Effective Gross Income

Cash Flow Before Tax

Standard Income Metrics Most Popular Cash Flow Valuation

Net Operating Income

Income remaining after all operating expenses but before debt service.

Example Result

Sample Data

$20,566

Based on a sample $385,000 property with $2,850/month rent, 20% down, 7% interest rate.

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Net Operating Income Formula

Monthly (Effective Gross Income − Total Operating Expenses) ÷ 12 $1,714/mo

Annual Effective Gross Income − Total Operating Expenses $20,566/yr

Effective Gross Income $32,490

- Total Operating Expenses $11,924

= Net Operating Income $20,566

How This Value Changes Over Time

At Purchase / Year 1 Effective Gross Income - Total Operating Expenses

Over Time (Year 5) Both EGI and expenses grow, but rent growth typically outpaces expense growth

What This Means

A sample property priced at $385,000 with $2,850/month rent has a net operating income of $20,566 at Purchase (Month 0). NOI is the universal yardstick for property performance. It strips out financing variables so you can compare properties objectively regardless of how they are financed. Lenders, appraisers, and investors all rely heavily on NOI.

Where This Value Comes From

Net Operating Income is not entered directly — it is calculated from Effective Gross Income and Total Operating Expenses. See the formula breakdown above and the detailed inputs below.

Inputs That Determine Net Operating Income

Effective Gross Income

Actual expected income after vacancy and other income.

$32,490

Purchase

Total Operating Expenses

Sum of all property operating costs (taxes, insurance, management, maintenance, CapEx, HOA, utilities)

$11,924

Purchase

Calculations That Use Net Operating Income

Debt Service Coverage Ratio

Value Based on Cap Rate

Valuation Metrics

$396,550

Purchase

Projected NOI (5-Year)

Cash Flow Projections

Platform Distribution

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Why It Matters

NOI is the universal yardstick for property performance. It strips out financing variables so you can compare properties objectively regardless of how they are financed. Lenders, appraisers, and investors all rely heavily on NOI.

Detailed Explanation

Net Operating Income (NOI) is the most important metric in commercial real estate. It measures the property's ability to generate income from operations by subtracting all operating expenses (taxes, insurance, maintenance, management, etc.) from Effective Gross Income, but excludes mortgage payments and capital expenditures.