As I mentioned in a previous blog, I see a lot of people confusing NOI (Net Operating Income) with ROI (Return on Investment) and ROI (Return on Investment).

Let me show you first of all what each in fact means.


Net operating income (NOI) is a calculation that shows the income after all expenses are paid (excluding debt). The total gross income the property generates less the total operating expenses will give you the net operating income.

Example: Gross Income: $100,000 - Operating Expenses: $50,000 = NOI $50,000

Return on investment (ROI) is essentially how much profit (or loss) you made in a fiscal year. This is show most often as a percentage and calculated by taking the net profit you made and divide it by your invested funds.

For example; if you purchased a 10 unit apartment building for $1,000,000. What was your investment?

So using the numbers above; to buy this building for $1,000,000 your initial investment is approximately $288,475.

You made this purchase based on a 7.5% Cap Rate (Capitalisation Rate) meaning the net operating income was $75,000.

Now you didn't buy this property in cash. You will have to service this debt. Let's assume you qualified for a rate of 2.50% and an amortisation period of 30 years.


Using the mortgage calculator; I was able to determine the principal and interest payments to service this debt (first mortgage) was $2,958.38 per month. This equates to an annual debt servicing of $35,500.56.

With a NOI of $75,000; you then deduct the debt servicing costs (your mortgage payments) of $35,500.56 which leaves you with $39,499.44. This amount is your CFBT (Cash Flow Before Taxes). I am going to use an arbitrary amount for taxes of 25%. 

Your NET PROFIT would be your CFAT (Cash Flow After Taxes) which equates to. $29,624.58. 

When you divide this number by the amount invested; you will see your ROI. 

$29,624.58 / $288,475 = 0.1026 (multiply this number by 100 to turn it into a percentage). The ROI is 10.26%. Where as the NOI was 7.5%. 

It sounds a lot more complicated than it is; once you get a working knowledge of how it works; you can usually run the numbers for a property in under 5 minutes. .