Net Operating Income (NOI)

Net operating income is rental income after vacancy and operating expenses, before any mortgage payment. It is the basis of the BRRRR hold-phase numbers: NOI minus the new loan's debt service is cash flow, NOI divided by debt service is the DSCR, and NOI divided by total project cost is the cap rate on cost.

On the default deal, $2,300 of rent with 5% vacancy is $26,220 collected. Taxes of $3,000, insurance of $1,300 and 18% of collected rent for maintenance, reserves and management bring NOI to about $17,200. Against $15,963 of debt service that is $1,237 of cash flow and a DSCR of 1.08.

NOI is what decides whether a BRRRR that returned the cash is also a rental worth owning. A property with $17,200 of NOI on a $205,800 project cost has an 8.4% cap rate on cost, healthy; the same NOI against a $195,000 loan at 7.25% barely clears the payment. The Wikipedia article redirects to earnings before interest and taxes, the corporate version of the measure.

Further reading: Net Operating Income (NOI) on Wikipedia.