What does net operating income exclude from its calculations?

Net operating income (NOI) is a key financial metric used in real estate to assess the profitability of an income-producing property. It represents the income generated from property operations after all operating expenses have been deducted. However, it specifically excludes costs associated with financing the property, such as mortgage payments.

In calculating NOI, property managers and investors consider various operating expenses, including maintenance expenses, property taxes, and utilities, as these directly affect the property's ability to generate income. By excluding mortgage payments, NOI allows owners and investors to focus on the property’s operational performance rather than its financing structure. This provides a clearer picture of how well the property itself is generating income relative to its operational costs.

Understanding this distinction is crucial for real estate professionals, as it helps in making informed investment decisions and evaluating property performance without the influence of financing costs, which can vary significantly among different properties.