NET OPERATING INCOME

 

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Net Operating Income (NOI), the next component of the cash flow statement, is an important gauge of a property’s financial strength.

NOI is:

• The income from operations that goes to lenders (in the form of debt service) and to owners (in the form of return on investment)
• A basis for estimating the value of a property (an important consideration for both lenders and owners)
• A widely used measure of financial health in real estate, even though it is not the same as profit
• NOI shows how well a property meets its day-too-day operating expenses and how much cash is left over to pay on the loan and the costs of major improvements. NOI thus is a strong indicator that enough money is flowing through the business to meet its obligation.