When is debt service deducted from potential gross income in net operating income calculations?

In net operating income (NOI) calculations, debt service is never deducted from potential gross income. NOI is primarily concerned with the income generated by a property from its operations, which includes calculating potential gross income and then subtracting operating expenses.

The focus of the NOI calculation is to provide an understanding of the property's ability to generate income from its operations without the influence of financing costs (debt service). By keeping debt service separate, investors can analyze the performance of the property itself, independent of how it is financed. This is critical because it allows for a clearer assessment of the property’s operational efficiency and profitability.

In summary, when calculating net operating income, the process involves determining potential gross income, subtracting operating expenses, and keeping considerations like debt service out of this specific calculation. Consequently, this ensures that the analysis reflects just the operational aspect of the income-generating property.