How is the Net Operating Income determined?

Net Operating Income (NOI) is a key indicator used in real estate appraisal and investment analysis, reflecting the profitability of an income-generating property. The correct method to determine NOI is by subtracting total operating expenses from the gross income generated by the property.

Gross income includes all revenue from property sources, such as rent and any additional fees, while operating expenses cover costs required for maintaining and operating the property, such as property management, maintenance, utilities, insurance, and property taxes. By using the formula of gross income minus expenses, you arrive at the net income that can be assessed to determine the property's financial viability.

The other methods of calculation listed do not align with the definition of Net Operating Income. For instance, adding expenses to gross income would distort the actual earnings capacity of the property. Dividing market value by expenses or gross income by market value would not yield a measure of profitability but rather ratios that do not reflect the income performance directly. Therefore, the accurate representation of Net Operating Income relies solely on the subtraction of total operating expenses from gross income.