What does net operating income (NOI) measure?

What does net operating income (NOI) measure?

• A. Profitability of a property's operations
• B. Cash Flow After Debt Service
• C. Tax Liability
• D. Total Revenue

Answer: (A)

Net operating income measures the profitability of a property's day-to-day operations. It shows how much income the property generates from rents and other operating sources after paying the costs required to run it (maintenance, management, utilities, insurance, property taxes, etc.), but before financing costs and taxes. In other words, it isolates operating performance from debt service and tax considerations. This is why NOI is used to compare properties and to support value measures like the capitalization rate.

Net operating income measures the profitability of a property's day-to-day operations. It shows how much income the property generates from rents and other operating sources after paying the costs required to run it (maintenance, management, utilities, insurance, property taxes, etc.), but before financing costs and taxes. In other words, it isolates operating performance from debt service and tax considerations. This is why NOI is used to compare properties and to support value measures like the capitalization rate.