What is the difference between gross rental income and net operating income?

The distinction between gross rental income and net operating income is crucial in real estate valuation. Gross rental income refers to the total amount of income generated from rental properties before any deductions. This figure represents what the property owner receives from tenants without accounting for any costs associated with managing the property.

On the other hand, net operating income (NOI) reflects the actual earnings from the property after subtracting operating expenses from that gross rental income. Operating expenses may include property management fees, maintenance, property taxes, utilities, and insurance, among others. Thus, NOI provides a more realistic view of the property's profitability because it takes into account the necessary expenses incurred to maintain and operate the property.

This distinction is essential for real estate investors and appraisers, as NOI is often used to assess the property's performance and value, and it allows for a more accurate comparison with other investment opportunities.