The net operating income (NOI) of income property is the sum of money left after the operating expenses have been deducted from the gross operating income (GOI). You might think of it as the amount of money, after rents are collected and all expenses paid, that’s left over to make the mortgage payment. 

Let’s take a look. Assume that a property has an annual GOI of $30,000 and annual operating expenses of $12,000. What’s the NOI? You got it, $18,000 ($30,000 less 12,000 = 18,000). What’s it all mean? It means the property produces $18,000 a year for the loan payment, which (if we did our homework) should be less than $18,000; and better yet, be less enough so we can make the payment and have money left over to put in our pocket (i.e., make a positive cash flow).    

The NOI by itself doen’t say anything about a rental property’s worth. But you will need it to compute cap rate so it helps to become familiar with it and in turn have some understanding about how it fits in to the evaluation process.    

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