Net Operating income

Net operating income (NOI) is derived from the total rental income less the non-recoverable operating costs of a property. Net operating income is therefore the annual net income taking vacancy costs into account. Other income is often added to rental income. For example, this can include income from billboards, installed antenna masts, etc. and capital services (interest and repayment). Repairs, taxes and depreciation are not included in net operating income.1 The calculation of net operating income can be shown as follows:

Annual net target rental income
+ other income
- amount for vacancy rent
= annual net actual rental income
- non-recoverable management costs
= net operating income2

Non-recoverable costs include management costs that cannot be allocated to tenants in the utility bill. In particular, these include management fees and maintenance costs that remain with the owner for legal or contractual reasons.

The calculation system shows that net operating income is an actual figure. It is therefore applied in the cash flow calculation. Accordingly, no projected costs are taken into account in the calculation if possible.3
Net operating income is one of the key input parameters for valuation in line with the international DCF method. Banks and other lenders calculate net operating income to assess the economic viability of the debt service for an investment.

Net operating income is therefore an internationally recognised and established key performance indicator for the economic assessment of property. Net operating income is used as an input in various performance indicators and is therefore highly significant in the property industry.4
  • 1 Vgl. Wendlinger, Peter (2012): Immobilienkennzahlen. Fundierte Immobilienanlayse in der Praxis, Wien, S. 100-101.
  • 2 Vgl. Schultheiß, Tobias (2010): 100 Immobilienkennzahlen, 2. Aufl. Wiesbaden, S. 88.
  • 3 Vgl. Brueggeman, William B.; Fisher, Jeffrey D. (2011): Real Estate Finance and Investments, 14th edition, International Edition 2011, S. 355.
  • 4 Vgl. Schultheiß, Tobias (2010): 100 Immobilienkennzahlen, 2. Aufl. Wiesbaden, S. 88.
Swiss Life Asset Managers
: 20.10.2019