What is net operating income primarily derived from?

Net operating income (NOI) is primarily derived from the income generated by a property after accounting for operating expenses but before deducting financing costs and taxes. It represents the profitability of a property based on its income-producing ability. Effective gross income, which includes all income generated from the property, is reduced by the necessary operating expenses such as maintenance, property management fees, insurance, and property taxes to calculate NOI.

The focus on operating expenses in this context underscores that NOI is a measure of how much revenue a property generates from its day-to-day operations after covering these costs. While sales revenue, investment returns, and market appreciation can relate to a property's financial performance, they do not directly reflect the ongoing operational income or costs that are integral to calculating NOI. Thus, identifying expenses deducted from effective gross income as the basis for NOI highlights its role as a key indicator in real estate financial analysis.