What is the net operating income formula?

NOI equals gross operating income plus ancillary income, minus all recurring operating expenses. It excludes debt service, income taxes, depreciation, and capital expenditures.

How does NOI differ from gross income?

Gross income is total revenue before any deductions. NOI subtracts vacancy allowances, credit losses, and all recurring operating expenses from gross income to reflect actual operational profitability.

What is a good NOI for an industrial property in the GTA?

There is no single benchmark, but a property generating a 5 to 6% cap rate on its NOI is broadly considered market-rate for GTA industrial assets in 2026. The specific figure depends on location, lease term, and tenant quality.

Why do lenders care about NOI?

Lenders use NOI to calculate the Debt Service Coverage Ratio (DSCR). A DSCR of 1.25x means the property generates 25% more income than required to cover debt payments, which is the standard minimum for most institutional industrial lenders.

Yes. If operating expenses exceed gross income, NOI is negative. This signals that the property is not generating enough revenue to cover its basic operating costs, which is a serious red flag for any investor or lender reviewing the asset.

June 7, 2026

What is net operating income in real estate?

By Michael Law · Industrial Real Estate Broker, Lennard Commercial Realty

Discover what net operating income is and how it impacts real estate investment decisions. Learn to calculate and apply this key metric effectively!

About Michael Law

Managing Partner and Industrial Real Estate Broker at Lennard Commercial Realty. Representing tenants and landlords across Toronto and the GTA for 15+ years. Michael specializes in GTA industrial real estate — connect with Toronto's leading industrial broker at mlawrealestate.com/industrial-broker-toronto.

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What is net operating income in real estate?

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