NOI, or Net Operating Income represents the total income a property generates after accounting for all operational expenses, but before accounting for mortgage interest and capital expenditures. It gives an investor or property owner a clear picture of the property’s operating profitability.
The “NOI Margin” is a metric that helps evaluate the efficiency of a property’s operations. It’s calculated as:
NOI Margin = (NOI / Total Revenue) 100%
- NOI is the Net Operating Income.
- TotalRevenueis the total income generated by the property before any expenses.
The NOI Margin, expressed as a percentage, tells you what portion of every dollar in revenue is left over after operational expenses. A higher NOI Margin indicates a more efficiently operated property, while a lower margin might suggest higher operational costs or inefficiencies.
For example, if a property has an NOI of $50,000 and total revenues of $100,000, its NOI Margin would be 50%. This means that for every dollar the property earns in revenue, 50 cents are left after operational expenses.
This metric is particularly important for real estate investors and property managers because it allows them to benchmark performance and make informed decisions about potential operational improvements or price adjustments.