NOI (Net Operating Income)
Definition
Net Operating Income (NOI) represents a property's total income after all operating expenses are deducted but before debt service, taxes, and capital expenditures, serving as the foundational metric for real estate valuation and return calculations.
Formula
NOI = Gross Operating Income − Operating Expenses
Why It Matters to Hotel Investors
- Primary metric used for property valuation and cap rate calculations
- Determines cash available for debt service and investor distributions
- Allows comparison of properties independent of financing structure
Common Mistake
Including or excluding different items from NOI—always verify whether property taxes, insurance, and reserves are included or excluded to ensure accurate comparisons.
Related Resources
Capitalization Rate (Cap Rate) is a valuation metric calculated by dividing a property's Net Operating Income by its purchase price or current market value, expressing the expected annual return on investment before financing costs and representing relative risk and return expectations.
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