What Is Net Operating Income (NOI)?
Net Operating Income — NOI — is the single most important metric in commercial real estate. If you understand only one number from this course, it is this one.
Net Operating Income — NOI — is the single most important metric in commercial real estate. If you understand only one number from this course, it is this one.
The formula: NOI = EGI − Operating Expenses
Operating expenses are the costs of running the building day-to-day: property taxes, insurance, property management fees, repairs and maintenance, utilities (if the landlord pays them), landscaping, and reserves for replacement. What is NOT in operating expenses: mortgage payments, depreciation, income taxes, and capital expenditures. These are deliberately excluded so that NOI measures the property’s performance independent of how it’s financed.
Why does that matter? Because two investors could buy the same property with very different loan structures — one with 20% down and another with 40% down — but both buildings produce the same NOI. NOI is a property-level metric. Financing is an investor-level decision.
Continuing the example from Lesson 1.2: if that property’s EGI is $478,000 and operating expenses total $180,000, the NOI is $298,000.
NOI is the numerator in the cap rate formula (which you’ll learn in Module 2) and the income figure lenders use to size your loan. A $10,000 error in NOI estimation can result in a $150,000 error in property valuation. Getting NOI right is not a detail — it’s the job.
Learn this properly
NOI is one of the core numbers in commercial real estate. The Language of CRE course teaches it alongside every other metric you need to read a deal, with worked examples and practice questions.
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Common questions
What is Net Operating Income (NOI)?
Net Operating Income — NOI — is the single most important metric in commercial real estate. If you understand only one number from this course, it is this one.
Why does NOI matter in a commercial real estate deal?
The formula: NOI = EGI − Operating Expenses Operating expenses are the costs of running the building daytoday: property taxes, insurance, property management fees, repairs and maintenance, utilities (if the landlord pays them), landscaping, and reserves for replacement. What is NOT in operating expenses: mortgage payments, depreciation, income taxes, and capital expenditures.
Related terms
[Operating Expense Ratio (OER)](/operating-expense-ratio/) · [Price Per Unit and Price Per Square Foot](/price-per-unit-and-price-per-square-foot/)
Educational definition only. Not investment, financial, or brokerage advice.