How is the net income ratio defined?

The net income ratio is understood as the ratio of net operating income (NOI) to effective gross income (EGI). This ratio is important because it provides insights into the efficiency of a property in generating income relative to the income it is capable of producing before expenses are accounted for. By evaluating net operating income—the income remaining after operating expenses are deducted from the effective gross income—this ratio helps assess how well a property is performing in terms of profitability.

Effective gross income takes into account all potential income from a property, minus adjustments for vacancy and collection losses. Therefore, the ratio helps owners and investors understand the portion of their effective gross income that is converted into net operating income, highlighting the property's operational performance. Utilizing this ratio is crucial when analyzing investment opportunities or managing a property portfolio, as it allows for comparisons between different properties and investment strategies.