What is the primary financial metric used to evaluate investment properties?

Net Operating Income (NOI) is the primary financial metric used to evaluate investment properties because it provides a clear picture of the property's profitability from its operations. NOI is calculated by subtracting operating expenses from gross revenue, excluding any financing costs, taxes, and capital expenditures. This metric focuses solely on the income generated from the property and the associated costs of managing and maintaining it, allowing investors to assess the operational efficiency of the asset.

Using NOI allows investors to compare different properties on a more equitable basis since it standardizes income and expenses. It serves as a foundation for other important assessments in real estate, such as determining the capitalization rate and evaluating property values. Understanding NOI is critical for making informed decisions about real estate investments, as it reflects the property's ability to generate income before considering financing and tax implications.