Financial
What is NOI (Net Operating Income)?
The income generated from a property after subtracting operating expenses but before deducting debt service, taxes, and capital expenditures.
Understanding NOI (Net Operating Income)
Net Operating Income (NOI) is a fundamental financial metric for income-producing properties like glamping resorts, RV parks, and campgrounds. It represents the property's profitability from operations before financing costs and taxes.
NOI is calculated by subtracting operating expenses from gross operating income. Operating expenses include utilities, maintenance, insurance, property management, marketing, and other day-to-day costs, but exclude debt service, income taxes, and capital improvements.
NOI is critical for property valuation, as it's used in the income approach to determine property value. It's also used to calculate the capitalization rate (cap rate) and assess a property's ability to service debt.
Sage Outdoor Advisory includes NOI projections and analysis in our feasibility studies and appraisals, helping clients understand property profitability and value.
NOI is calculated by subtracting operating expenses from gross operating income. Operating expenses include utilities, maintenance, insurance, property management, marketing, and other day-to-day costs, but exclude debt service, income taxes, and capital improvements.
NOI is critical for property valuation, as it's used in the income approach to determine property value. It's also used to calculate the capitalization rate (cap rate) and assess a property's ability to service debt.
Sage Outdoor Advisory includes NOI projections and analysis in our feasibility studies and appraisals, helping clients understand property profitability and value.
Examples of NOI (Net Operating Income)
- •A glamping resort generates $800K in gross operating income from room revenue. Operating expenses total $500K including: utilities ($95K), property maintenance ($120K), insurance ($35K), management fees ($120K), marketing ($40K), administrative costs ($25K), property taxes ($35K), and other expenses ($30K). NOI = $800K - $500K = $300K. This NOI is then used for property valuation: at an 8% cap rate, the property value = $300K ÷ 0.08 = $3.75M. NOI excludes debt service ($180K) and capital improvements, focusing purely on operational profitability.
- •An RV park with $1.2M annual revenue incurs $600K in operating expenses: utilities ($180K), maintenance ($150K), property management ($90K), insurance ($45K), marketing ($35K), administrative ($40K), property taxes ($50K), and repairs ($10K). NOI = $1.2M - $600K = $600K. Lenders use this NOI to determine loan capacity: requiring 1.4 DSCR, maximum debt service = $600K ÷ 1.4 = $428K annually, which supports approximately a $4.5M loan at current interest rates. This NOI demonstrates strong operational performance and ability to service debt.
- •A campground owner analyzes NOI improvement: Current revenue is $650K with $390K operating expenses = $260K NOI. By reducing utilities through efficiency upgrades ($15K savings) and renegotiating management fees ($10K savings), operating expenses drop to $365K. New NOI = $285K, a 9.6% increase. At an 8.5% cap rate, this $25K NOI improvement increases property value by $294K ($25K ÷ 0.085), showing how operational efficiency directly impacts property valuation and investor returns.
Common Use Cases
- •Property valuation
- •Investment analysis
- •Loan underwriting
- •Financial planning
Related Services
Frequently Asked Questions About NOI (Net Operating Income)
What expenses are included in NOI?
NOI includes all operating expenses like utilities, maintenance, insurance, and management, but excludes debt service, taxes, and capital improvements.
How is NOI used in property valuation?
NOI is divided by the capitalization rate to determine property value in the income approach to valuation.
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