What does the Net Operating Income (NOI) exclude from its calculations?

Net Operating Income (NOI) is a key metric in real estate that measures the profitability of an income-generating property. It is calculated by taking the total revenue generated by the property and subtracting all operating expenses incurred during the property’s management and operation.

When calculating NOI, one important aspect to understand is what is excluded from this computation. The answer revolves around the fact that income taxes are not considered part of the operating expenses of a property. Therefore, while total revenue and property operating expenses, such as maintenance, utilities, and management fees, are included in the calculation, the impacts of income taxes are excluded.

By excluding taxes, NOI provides a clearer insight into the property's operational performance without being affected by the tax liabilities that can vary widely based on ownership structure, tax strategies, or personal income tax situations. This allows investors to evaluate a property's profitability solely based on its operational effectiveness.

In contrast, total revenue, all property expenses, and other operating costs directly relate to the income generated and expenditures related to property management, which are accounted for when calculating NOI.