NOI not including Mortgage and Property Taxes?

[Eric Lilly]

Hey everyone! 

Sorry if this is a boring or simplistic question, I'm wrestling more with understanding the concept or reason for this. I'm currently reading "What Every Real Estate Investor Needs To Know About Cash Flow" by Frank Gallinelli. Currently reading about NOI. I understand how one acquires this number. However, he doesn't include the mortgage and property tax payments as an expense. What benefits or uses does this have in comparison to calculating straight cash flow? He talks a lot about evaluating the "income stream" and viewing rental properties as such. That makes a lot of sense to me, I quite enjoy that. But what use is the NOI without subtracting the necessary costs of the mortgage taxes?

For example: If the NOI for a property is 12,000 per year. What can I do with or compare that number to as opposed to subtracting say 9,000 for mortgage and taxes and knowing that my cash flow per year is 3,000?

I genuinely want to know, not trying to nitpick. NOI seems like a really important metric, I'm just trying to understand why.

Thank you all!

[Bill B.]

You need to know the net income because that’s the taxable part. If you had cashflow of $1200 but income of $12000 (buried in the mortgage paydown) you could potentially owe more than $1200 in taxes On that $12,000 so you really have negative cashflow. 

Plus the income is the number that really matters more so than the cashflow. Imagine a deal that you can only buy this way. 

$310,000 property, $10,000 down and 10 years of principle only payments of $2500/mo plus $500 for property taxes and insurance that will rent for $3,000/mo  there’s zero cashflow so you don’t buy it? The income is $2500/mo the cashflow is zero  

I have a negative cashflow property that has an annual income of $12,000. In a few years Once the short term loan is paid off the cashflow will be $30,000 year, the same as the income  before interest and loan paydown