Net Operating Income is crucial in the real estate industry, notably in property management and real estate investment. For property managers, NOI offers insight into a property’s profitability and post-operating expenses. On the other hand, investors use NOI to assess the income potential of real estate investments, assisting in decision-making by comparing NOIs of different properties.
NOI is also foundational in determining the capitalization rate (cap rate), a critical real estate valuation metric. Moreover, when considering a potential investment property, NOI provides an objective measure of total income potential, independent of financing structures, thus offering potential buyers an indication of whether income can cover operating costs. Lastly, lenders utilize NOI to evaluate a potential borrower‘s capacity to service debt, with a higher NOI signifying that the property income, after operating expenses, can cover the debt.