What is net operating income?

Net operating income (NOI) is a critical metric in SaaS and real estate, highlighting profitability by deducting operating expenses from gross income.

What costs are not included in net operating income?

Net operating income only looks at the revenue earned from your core business activities and your total operating expenses. It doesn’t include costs related to financing the business or income taxes.

Is net operating income the same as EBIT?

Net operating income is similar to EBIT since they both deduct operating expenses from gross income. NOI, however, does not include the cost of income taxes, while EBIT does.

Can net operating income be negative?

Yes, net operating income can be negative. This happens when a company’s operating expenses exceed its gross operating income. A negative NOI implies that a company’s core business operations are not profitable and might indicate a need for the company to reassess its operations or business model.

How is NOI used in real estate?

Net operating income (NOI) plays a key role in real estate—especially in property management and investment. For property managers, it offers a snapshot of a property’s profitability after operating expenses. For investors, it’s a way to evaluate income potential and compare different properties objectively. NOI also forms the basis for calculating the capitalization rate (cap rate)—a core metric for valuing real estate. Because NOI doesn’t factor in financing, it gives a clear view of how well a property performs on its own. When assessing a potential investment, NOI helps answer a key question: Can the property’s income cover its operating costs? And from a lending perspective, a strong NOI signals to banks or lenders that the property is likely to generate enough income to meet debt obligations.