How is net operating income (NOI) calculated?

Net operating income (NOI) is a key metric in real estate that measures a property's ability to generate income from its operations. To calculate NOI, one must take the total income generated by the property, which includes rental income and other revenue sources, and subtract all operating expenses associated with the property. Importantly, this calculation excludes any mortgage payments or financing costs, focusing solely on the income and expenses related to property management.

Thus, the correct approach to determining NOI is taking total income from the property and subtracting operating expenses. Operating expenses may encompass property management fees, maintenance costs, property taxes, insurance, and utilities, but not mortgage payments. This focus enables real estate investors and analysts to assess the operational profitability of a property, independent of financing considerations.