Net operating income (NOI)

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

Net operating income is what a property earns in a year after the costs its owner bears: rent, less the outgoings, management fees and repairs that are not recovered from tenants and, in a forecast, an allowance for vacancy. It is struck before interest, depreciation and income tax, and usually before capital spending, which makes it the figure capitalisation rates and debt yield are calculated from. A building with US$2.0m of rent and US$0.3m of unrecovered costs has NOI of US$1.7m. A desk reads the leases for who pays which costs, because the same rent leaves less under a gross lease than a net one.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.