Net Operating Income (NOI)

Net Operating Income (NOI) is gross rental income minus vacancy allowance and operating expenses. Operating expenses include property tax, insurance, repairs and maintenance, property management fees, utilities the landlord pays, strata/HOA fees, and turnover costs. NOI explicitly EXCLUDES mortgage principal and interest (those belong below the line in cash-flow analysis), depreciation (a tax accounting concept), and capital expenditures (roof, windows, foundation; these are treated as below-the-line capex reserves rather than annual operating cost).

NOI is the input both to cap rate (NOI ÷ price) and to DSCR (NOI ÷ debt service), so getting it right is foundational to investor underwriting.

NOI is an investor/appraiser convention, not a statutorily defined term. The number a seller's broker shows you is almost always optimistic: gross rents stated at market top, vacancy assumed at 2% (BC realistic is 3–6% on most product types), maintenance under-reserved (rule of thumb is 1% of value/year on a stabilized building, much higher on aged stock), management self-managed (add 6–10% if you'll hire).

Practitioner habit: rebuild NOI from the seller's last 2 years of actual T776 statements (not their pro-forma), apply your own vacancy and reserves, and use that NOI when computing cap rate and DSCR.