Net Operating Income

NOI is one of the most important financial metrics in commercial real estate, used to evaluate property performance, calculate cap rates, and qualify for financing. It is calculated by subtracting total operating expenses (including property management, insurance, maintenance, taxes, and vacancy allowances) from gross potential rental income. NOI does not account for mortgage payments, capital expenditures, or depreciation. For healthcare investors and owner-operators considering purchasing a medical office building in the Chicago suburbs, NOI provides a clear picture of how much income the property generates on an ongoing basis. Lenders use NOI to calculate Debt Service Coverage Ratio (DSCR), a key underwriting metric for commercial real estate loans.

Understanding NOI helps healthcare operators evaluate whether purchasing a building makes financial sense relative to leasing. It also informs investment decisions for practices building a real estate portfolio alongside their clinical operations.

An MOB in Naperville collects $480,000 in annual gross rent. After deducting $130,000 in operating expenses (taxes, insurance, management, maintenance), the NOI is $350,000 — which at a 6% cap rate implies a property value of approximately $5.8 million.