Net operating income is the income from a rental property left over after paying all of the operating expenses:
Gross Scheduled Rent $100,000
Less 5% Vacancy & Collection Loss $5,000
Effective Gross Income: $95,000
Less Operating Expenses
Real Estate Taxes
Insurance
Repairs & Maintenance
Utilities
Management
Reserves for Replacement
Total Operating Expenses: $30,000
Net Operating Income (NOI) $65,000
Lenders always insist on some sort of vacancy factor regardless of the actual vacancy rate in an area to cover collection loss. In addition lenders always insist on using a management factor of 3-6% of effective gross income, even if the property is owner-managed. Their logic is that they would have to pay for management if they took back the property.
Zach has a pretty good list going. There are also reserves for replacement depending on the property type they vary. Lenders use a national cap rate which also varies by property type. Expense Growth Rate. TI/LC (Tenant Improvement / Leasing Commisions) factor.