Net operating income is a measure of a rental property's profitability. It equals the property's total income, mainly rent and other revenue, minus its operating expenses such as property taxes, insurance, maintenance, management, and utilities.
Crucially, NOI is calculated before subtracting mortgage principal and interest and before income taxes and major capital expenditures. This makes it a measure of how the property itself performs, independent of how a particular owner finances it.
NOI is a foundational figure in real estate investing. It feeds directly into the cap rate calculation and helps investors evaluate and compare properties. A vacancy allowance is typically factored in to make the estimate realistic.