The NOI is quickly defined: All operating expenses are deducted from the sum of all revenues. Total income is the sum of net rents plus all other ordinary income and earnings from the property. Operating expenses include operating costs that cannot be passed on to the tenants.
Whether rental arrears or vacancy costs are also subsumed under operating costs is already a matter of definition. The details of operating costs are also important. Basically, they are those costs that cannot be passed on to the tenants, i.e. higher vacancy rates reduce the NOI, since the owner has to bear the operating costs attributable to the vacant space. It should be noted, however, that only those costs that have to be incurred for the proper operation of the property itself are taken into account. Thus, for example, legal fees incurred in the course of tenant support are operating costs, whereas those incurred for issues of company law are not. Translation costs incurred because the shareholder or managing director does not speak the local language are not operating costs. However, translation costs incurred on behalf of tenants (sometimes into English) do fall under operating costs.
It is advisable to clearly define the NOI for one’s own asset management so that the figure is really meaningful.