NOI (Net Operating Income)
A property’s income minus its operating expenses, calculated before loan payments, income taxes, and capital expenditures. NOI isolates how the property itself performs, independent of how it is financed or owned. It is the numerator in cap rate and DSCR, which makes it the backbone of most income-property analysis.
Related terms
Cap Rate (Capitalization Rate)
A property’s net operating income divided by its price or market value, expressed as a percentage. Cap rate measures the unlevered annual return of an income property, which makes it useful for comparing deals independent of how they are financed. Typical cap rates vary widely by market and property type.
Operating Expenses
The recurring costs of running a property: property taxes, insurance, management, routine maintenance, utilities the owner pays, and similar line items. Operating expenses exclude mortgage payments and capital expenditures. Subtracting them from income yields NOI, so what counts as an operating expense directly shapes every metric built on it.
DSCR (Debt Service Coverage Ratio)
Net operating income divided by annual debt service. A DSCR of 1.25 means the property’s income is 125% of its loan payments; below 1.0, the property does not cover its own debt. Lenders use DSCR to size loans, and DSCR loan programs qualify borrowers on property income rather than personal income.
CapEx (Capital Expenditures)
Spending on major components that extend a property’s life or add value — roofs, HVAC systems, water heaters, full renovations — as opposed to routine repairs and upkeep. Investors typically budget a recurring reserve for capex even in years when nothing is replaced. Most analyses treat capex separately from operating expenses, so it sits below NOI.