Overview · What & why
A decision, before a calculation.
Net operating income measures property income after operating expenses and before financing. It is useful for comparing assets with different debt structures. Operating expenses keep the property functioning; capital improvements create or replace longer-lived assets. The boundary requires a consistent accounting convention, especially for reserves and recurring replacements.
A concrete example
Riverton receives $950K of rental revenue and pays $50K of nonrecoverable expenses, yielding $900K NOI. If a $100K roof replacement is capital expenditure, NOI is still $900K, but pre-debt cash available after that work is $800K.
What to remember
NOI is an operating measure, not the owner’s spendable cash.
Before using this in a project: Operating accounts, reimbursement clauses, service contracts and a capital replacement plan.