Net operating income (NOI)

NOI is the primary income measure for real estate. It excludes debt service, capital expenditures, income taxes, and depreciation, which makes it comparable across properties with different financing.

A property with $150,000 of collected revenue and $60,000 of operating expenses has $90,000 of NOI.

NOI is the input to value. At a 6% market cap rate, every extra $1,000 of annual NOI is worth roughly $16,000 of value — which is why an avoidable recurring expense costs far more than its monthly amount suggests.

Use collected revenue rather than billed revenue, include a management fee whether or not you pay one, and hold the line between repairs and capital improvements. Report NOI on the same basis every period so the trend means something.

Classifying capital work as maintenance, omitting vacancy loss, and including mortgage interest. Each inflates or distorts the number in a way that shows up during diligence.