Net Operating Income (NOI)
A property's income after operating expenses but before mortgage debt service, used in the income approach to value.
Net operating income is the income a property produces after subtracting operating expenses such as taxes, insurance, maintenance, and management. It does not subtract mortgage payments, because debt service is a financing cost, not an operating cost.
Net operating income drives the income approach: value equals net operating income divided by the capitalization rate.
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- Capitalization Rate (Cap Rate)
The rate of return on an income property, equal to net operating income divided by value.
- Income Approach
An appraisal method that estimates value by dividing a property's net operating income by the capitalization rate.
- Gross Rent Multiplier (GRM)
A quick valuation tool equal to sale price divided by gross rent, using gross income rather than net.
This definition is Texas real estate exam-prep education, not legal, tax, or professional advice. Verify current rules against the official source before relying on them for a real transaction. Back to the full glossary.