Net Operating Income (NOI) is the lifeblood of real estate investing. Understanding what makes a good NOI helps investors evaluate properties more accurately and set realistic expectations.

What is NOI?

NOI is the annual income a property generates after operating expenses but before debt service. It represents the property’s ability to generate cash from its operations and is the foundation for cap rate calculations.

What Makes a Good NOI?

A good NOI depends on the property size and type. As a rule of thumb, a 60-70% expense ratio (expenses divided by gross income) is considered healthy. This means NOI should be 30-40% of gross income. Higher NOI margins indicate better operational efficiency.

Improving Your NOI

• Increase rental income through market-rate adjustments
• Add ancillary income sources like parking or laundry
• Reduce operating expenses through efficiency improvements
• Implement professional property management to reduce vacancies
• Negotiate better vendor contracts for maintenance and services

NOI and Property Value

Since property value is calculated as NOI divided by cap rate, increasing your NOI directly increases property value. Every dollar added to NOI can multiply your property’s worth by 10 to 20 times depending on market cap rates.