What is Net Operating Income (NOI)?
Net Operating Income is the income a property generates from its operations after deducting all operating expenses but before financing costs and taxes.
It is the standard measure of a property’s underlying earning power and the foundation for valuation, distributions, and performance comparison across real estate investments.
How NOI Is Calculated
NOI starts with effective gross income, which is gross potential rent plus other income such as parking and laundry, less an allowance for vacancy and credit loss. From this, the operator deducts the operating expenses required to keep the property running over the period.
A property generating $1.2 million in effective gross income with $400,000 in operating expenses has an NOI of $800,000. The figure reflects what the asset earns from its core function as a property, independent of how the owner has financed it or what tax treatment applies to the entity.
What NOI Includes and Excludes
Operating expenses included in the NOI calculation are property management fees, insurance, property taxes, utilities not reimbursed by tenants, repairs and maintenance, leasing costs, and routine professional fees. These are the costs of running the property regardless of how it is owned.
NOI explicitly excludes mortgage interest, principal repayments, depreciation, income taxes, and capital expenditures. These items either reflect financing and ownership choices specific to the holder or are non-cash accounting entries. Excluding them isolates the operating performance of the asset itself.
Why NOI Matters
NOI is the input to the most common real estate valuation method. Dividing NOI by the relevant capitalization rate produces an estimate of what the property is worth. A building with $800,000 in NOI valued at a 6% cap rate is worth approximately $13.3 million as an investment.
It is also the comparable metric across very different properties. A logistics warehouse, a multi-family building, and an office tower can be evaluated against each other on a normalized basis once their NOI and the market cap rates for their property type are known. Without NOI, every property would have to be analyzed in isolation.
NOI in Tokenized Real Estate
For tokenized property offerings, NOI flows through the SPV that owns the asset. The SPV collects rent and other income, pays operating expenses, and the resulting NOI is what is available to service debt, fund reserves, and pay distributions to token holders.
Tokenization does not change how NOI is calculated. Rent is still rent, taxes and insurance still apply, and management fees still come out of operations. What changes is the visibility. The income statement of the SPV is disclosed to token holders, and projected versus actual NOI can be tracked over the life of the offering rather than reviewed once a year.
NOI at Node Proptech
Each Node Proptech offering discloses the projected NOI of the underlying property in the offering documents, with the assumptions for rent growth, vacancy, and operating expenses clearly stated. Actual NOI is reported through the life of the investment, allowing holders to track operating performance against the projections and to understand how distributions are being supported by the property’s underlying earnings rather than by financial engineering.