Real estate and construction
NOI (net operating income)
A property's income after operating costs, before debt payments, depreciation and income tax.
Last reviewedWhat does NOI (net operating income) mean?
Net operating income is the rent and other income a property earns, minus the cost of running it (maintenance, management, insurance, property taxes, utilities not recharged to tenants). It comes before interest, loan repayments, depreciation, major capital spending and income tax, so it measures the property itself, not how it is financed. Example: a building with potential rent of 10 million loses 0.8 million to empty space and spends 2.2 million on operating costs, so its NOI is 7 million. NOI is the starting point for valuing property with a cap rate.
Where does it come up in case interview prep?
- How construction and real estate work: who builds, who owns, who paysLesson in Construction, real estate and infrastructure
- Real estate economics and project delivery: margins, cap rates, overruns and PPPsLesson in Construction, real estate and infrastructure
- Construction and real estate players, trends 2024 to 2026, and how to crack the casesLesson in Construction, real estate and infrastructure
Related terms
- Cap rate (capitalization rate)A property's net operating income divided by its value: its yield at today's price.
- EBITDAEarnings before interest, taxes, depreciation and amortization.
- Occupancy rateThe share of available rooms (or beds) that are filled over a period.
- REIT (real estate investment trust)A company that owns income-producing property and pays out most of its income to investors.
- Loan-to-value (LTV)A loan as a share of the value of the property securing it.
- EPC contract (engineering, procurement and construction)A contract where one contractor designs, buys and builds a project and hands it over ready to run.
- Critical pathThe longest chain of dependent tasks in a project, which sets how fast it can finish.