Which formula is used to calculate Net Operating Income (NOI)?

Net Operating Income (NOI) is a crucial measure in real estate that represents the income generated by a property after all operating expenses are subtracted but before deducting taxes and financing costs. The calculation of NOI involves determining Effective Gross Income (EGI), which is the total income from the property after accounting for vacancies and credit losses, and then subtracting operating expenses.

The correct formula for calculating NOI is EGI minus operating expenses. This highlights the income that is available to the property owner after all costs necessary to maintain and operate the property have been accounted for. This measure is vital for investors as it provides a clear picture of the property's financial performance.

The other choices do not correctly represent this calculation. For instance, EGI plus operating expenses incorrectly suggests that adding expenses would lead to net income, which contradicts the definition of NOI that focuses on income after expenses. Similarly, PGI, or Potential Gross Income, is a different metric that does not account for vacancy losses, making it unsuitable for tracking NOI directly. Lastly, including total liabilities in the calculation suggests a misunderstanding of expense definitions, as liabilities relate to financing rather than operating income. Thus, understanding that NOI is derived specifically from subtracting operational costs from EGI is essential for financial analysis