Detailed explanation
NOI is the cornerstone of income-approach valuation. It captures the sustainable cash flow a real estate asset generates before financing costs. NOI = Gross Rental Income − Vacancy & Collection Loss − Operating Expenses (property management, insurance, non-recoverable maintenance). NOI excludes depreciation (not a cash expense), interest (financing-specific), and income tax (investor-specific). Together with cap rate or discount rate, NOI underpins the direct capitalisation and DCF methods.
Moroccan example
A retail strip in Rabat generates 1.5 M MAD gross rents. Vacancy 8%, non-recoverable costs 12% of gross = 1.5 × 0.92 − 1.5 × 0.12 = NOI of ~1.2 M MAD.
Related terms
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