Which statement best defines Net Operating Income (NOI) for a multifamily property?

• A. Net Operating Income equals gross income minus capital expenditures.
• B. Net Operating Income equals gross income minus operating expenses.
• C. Net Operating Income equals total profits after tax.
• D. Net Operating Income equals gross potential rent.

Answer: (B)

Net Operating Income measures how much a multifamily property earns from its day-to-day operations, before financing costs and taxes. It takes the income the property actually generates from rents and other sources (usually after accounting for vacancies) and subtracts the operating expenses needed to run the property, such as property management, maintenance, utilities paid by the owner, insurance, property taxes, and repairs. It does not include debt service, taxes, depreciation, or capital expenditures. That focus on operating performance is why this option—gross income minus operating expenses—best defines NOI. The other statements mix in capital expenditures, taxes, or potential rents instead of actual operating income and costs, which is not what NOI represents.