Real Estate Investing

Real estate investing is the purchase, ownership, management and sale of property for profit. Its plain language definition of net operating income, rents minus ongoing expenses, is the one this site uses. NOI is the figure that separates a property's performance from the investor's financing.

Wikipedia's real estate investing article describes NOI as the sum of all positive cash flows from rents and other sources less the ongoing costs of maintaining the property, and notes that it excludes debt service. That is why the same house shows the same $18,270 of NOI to a cash buyer, a buyer with 25% down and a buyer with a hard money loan. Their cash flows differ. Their NOI does not.

Almost every metric the field uses starts from NOI. Cap rate divides it by price, 6.09% on the default property. Debt service coverage divides it by the loan payment. Cash on cash return subtracts the loan payment and divides by cash invested. An investor who gets NOI wrong by leaving out management and reserves gets all three wrong in the same direction.

Further reading: Real Estate Investing on Wikipedia.