Accredited investors who transition from investing in publicly traded stocks to private real estate must contend with a new lexicon of financial metrics.
Although investing in private real estate investment funds—like DLP Capital-sponsored funds—means you aren’t managing day-to-day property operations, understanding the math underlying your fund’s portfolio can help you make more intelligent allocation decisions.
One of the most important metrics that allows investors to understand the performance of the assets in a real estate fund is Net Operating Income (NOI).
What is Net Operating Income (NOI)?
Net Operating Income (NOI) is a calculation that describes the ongoing profitability of an income-generating real estate asset. In simple terms, NOI is what’s left over when you take the total revenue generated by a property and subtract all operating expenses.1
Conceptually, a property’s NOI measures its operational efficiency. While NOI removes operating expenses from total income, it excludes major capital expenditure (CapEx) items, such as the cost of replacing roofs, HVAC systems, or parking lots.1
It also excludes debt service and financing expenses (mortgage payments), depreciation, and income taxes (but not property taxes). This isolation makes NOI a measure of how effectively a property is being managed at the ground level.
