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Net operating income (NOI) reflects income after operating expenses are deducted, but before income taxes and interest are deducted. If this is a positive value, it is referred to as net operating income, while a negative value is called a net operating loss. Net operating income is often used to determine income from real estate, such as rental properties or commercial properties, as well as to assess the ability of a property to pay back loans. 

Net operating income is often considered the best measure to assess the financial health of a property because it is least susceptible to manipulation. It is calculated by first determining the property's gross operating income (GOI), which is the gross potential income, minus vacancy and credit loss. Next, subtract all operating expenses from the GOI. These expenses can include maintenance, fees, insurance, etc. The resulting number is the net operating income. 

NOI can provide real estate investors with a glimpse at the income a rental property might provide, as it shows the remaining cash balance after operational expenses are hypothetically paid. This can affect the price investors pay for the property, and from a seller's perspective, the price at which the property is listed. 

 

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