Net Operating Income (NOI)

Net operating income is the rent that remains after vacancy losses and operating costs, counted before loan payments. 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.

Those costs cover taxes, insurance, management, upkeep, reserves for replacements, utilities the owner pays and HOA fees. On a $500,000 property at $4,000 rent, gross rent is $48,000 and NOI under typical expenses is about $29,200. GRM sees the $48,000. Cap rate sees the $29,200.

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. Wikipedia sends net operating income to its EBIT page, since EBIT is how companies express the same concept.