Depreciation

Depreciation is the accounting and tax charge that spreads the cost of a building over its assumed useful life, 27.5 years for US residential rental property. It is not a cash expense and is excluded from net operating income, which is the line that makes the EBIT redirect for NOI wrong.

On the default property, a $400,000 building (the $500,000 price less $100,000 of land) depreciates at about $14,545 a year. That deduction lowers taxable income but does not touch NOI, which stays at $28,892. An investor with negative cash flow after the mortgage can still show a tax loss on Schedule E because of it, and that loss is often the reason the deal was done.

Search Wikipedia for net operating income and you land on earnings before interest and taxes, a company-level figure that does subtract depreciation. Anyone who follows that redirect and applies the formula literally will understate a property's NOI by thousands of dollars a year. The real estate definition, income less operating expenses before depreciation, interest and income tax, lives under the income approach article instead.