Net Operating Income (NOI)

Net operating income is rental income after vacancy and operating expenses, before any mortgage payment. Gross rent multiplier exists to avoid needing it: GRM uses gross rent because rent is on every listing and expenses are not. The cost of that shortcut is everything NOI would have caught.

Operating expenses include property taxes, insurance, management, maintenance, capital reserves, owner-paid utilities and HOA dues. On a $300,000 property at $2,500 rent, gross rent is $30,000 and NOI under typical expenses is about $18,270. GRM sees the $30,000. Cap rate sees the $18,270.

The difference between two properties' NOI at the same gross rent is the difference GRM cannot see. High property taxes, condo dues or owner-paid heat all reduce NOI without touching GRM. Once a property passes the GRM screen, build its NOI line by line. The Wikipedia article on net operating income redirects to earnings before interest and taxes, the corporate form of the same idea.

Further reading: Net Operating Income (NOI) on Wikipedia.