What does 'net operating income' (NOI) represent in the context of real estate?

Net Operating Income (NOI) is a crucial metric in real estate that reflects the operational performance of a property. It represents the total income generated by a property after subtracting operating expenses, which include costs such as property management, maintenance, property taxes, and insurance.

By focusing on NOI, investors and property managers can accurately assess the income potential of a real estate asset, as it isolates the operational profitability without the influence of financing and tax considerations. NOI is essential for determining a property’s value and assessing its ability to generate cash flow, making it a fundamental concept in real estate investment analysis.