What is not included in NOI?

NOI leaves out mortgage principal and interest, depreciation, income taxes, capital improvements that add value, closing costs and loan fees, and the owner's own draw. It is the property's income before financing and before the tax return, which is what makes it comparable from one owner to the next.

Two owners with different loans on identical buildings have the same NOI and different cash flow. Two owners in different tax brackets have the same NOI and different after-tax income. Removing those items is the whole point of the measure.

The gray area is capital spending. A new roof is a capital improvement and stays out. The reserve set aside each year so the roof can be replaced is an operating expense in most residential underwriting, usually 5 to 10% of collected income. Commercial appraisals sometimes deduct reserves below NOI instead. Check which convention a statement used before comparing two properties.