What is NOI margin?

What is NOI Margin?

The NOI margin, or Net Operating Income margin, in real estate is a profitability metric that compares the Net Operating Income (NOI) of a property to its total revenue. The NOI is a key figure in real estate that represents the total income generated from a property, minus the operating expenses. These operating expenses include costs such as property management, maintenance, insurance, and taxes, but exclude financing costs and depreciation.

The NOI margin is calculated by dividing the NOI by the total revenue of the property and is expressed as a percentage. This margin provides insights into the efficiency of a property's operation by showing what percentage of the revenue is remaining after covering operating expenses. A higher NOI margin indicates a more efficiently operated property with lower relative operating costs, making it a crucial indicator for investors and owners to assess the financial health and performance of their real estate investments.

For example, if a property generates $200,000 in total revenue and has $150,000 in operating expenses, its NOI would be $50,000. To calculate the NOI margin:

NOI Margin = (NOI / Total Revenue) x 100 = (50k / 200k) x 100 = 25%

This means that 25% of the property's total revenue is net income after operating expenses, which can be considered a measure of the property's operational efficiency and profitability.

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