What does the term "net operating income" (NOI) refer to?

Net operating income (NOI) is a critical concept in real estate appraisal and investment analysis. It represents the total revenue generated from a property, typically through rents or other income sources, after deducting all operating expenses associated with maintaining and managing the property. This includes expenses such as property management fees, maintenance costs, utilities, insurance, and property taxes, but does not account for financing costs or taxes on the income itself.

By focusing on total revenue minus operating expenses, NOI provides a clear picture of the property's operational efficiency and profitability. It is a fundamental metric used to evaluate the performance of income-generating properties and is essential for calculating the property's value through methods such as the income approach to appraisal. Understanding NOI is vital for making informed investment decisions, as it indicates the cash flow potential of the property before considering factors like financing and taxes.