Net Income

Net income is the profit left after all expenses, including interest, depreciation and income tax, are subtracted from revenue. It is the bottom line of an income statement. For a rental property, net income sits well below NOI, because NOI stops before the loan and the tax return.

Take the default house with a $375,000 loan at 7.25%. NOI is $28,892. First-year interest is about $27,068 and depreciation on the $400,000 building is $14,545. Taxable net income is about negative $12,700, a paper loss, even though the property produced positive NOI.

That gap is why investors value property on NOI and not net income. Two buyers of the same house will report different net income because their loans and tax positions differ. The NOI stays the same for both.