How does NOI differ from net income?

NOI is the property's income after operating expenses but before mortgage interest, depreciation and income tax. Net income is what remains after all three. NOI describes the building. Net income describes the owner's tax return, and it changes with the loan, the depreciation schedule and the owner's bracket.

On the default property, NOI is $18,270. A $225,000 loan at 7.25% costs about $16,200 of interest in the first year, and depreciation on a $240,000 building over 27.5 years is $8,727. Taxable net income is roughly negative $6,700, even though the property collected $28,500 and kept $18,270 before debt.

That gap is why investors quote NOI and accountants quote net income. A lender, appraiser or buyer wants the building's performance without your financing attached. The IRS wants the figure after every deduction.