What the property earns before the mortgage.
Net operating income is the income the asset itself produces: rent and other income, minus every operating cost, before any loan payment. It is the number banks underwrite and buyers price. Enter your figures and watch it build.
Income
NOI excludes mortgage and debt service, capital improvements, depreciation and income tax. Those are not operating costs.
Reading these numbers
Where effective gross income goes
EGI split into NOI and operating costs
Operating expenses by category
The NOI scorecard
Line-item breakdown
Every dollar from effective gross income down to net operating income, with each line as a share of EGI.
| Line item | Amount /yr | % of EGI |
|---|
NOI, explained
NOI Formula
NOI = Gross Rental Income - Vacancy Loss - Operating Expenses. Operating expenses include property tax, insurance, maintenance, property management, but NOT mortgage payments, depreciation, or capital improvements.
The 50% Rule
A common rule of thumb: operating expenses run ~50% of gross rent for typical residential. This calculator lets you compute actual numbers. The 50% rule is conservative, well-managed properties run 35-45%.
Why NOI Matters
NOI drives cap rate, property valuation, and lending decisions. Banks underwrite commercial loans on NOI, not gross rent. Buyers price properties based on NOI multiples.
Common NOI Mistakes
Forgetting vacancy reserve (always include 5-10%). Excluding management fees if you self-manage but plan to sell (buyer needs to budget). Including mortgage (it's not operating).
Common questions
What's included in operating expenses?
Property tax, insurance, maintenance, property management, utilities you pay, landscaping, snow removal, vacancy reserve, accounting/legal fees.
What's excluded from NOI?
Mortgage P&I, depreciation, capital improvements (new roof), income tax, owner's labor value.
Should I include reserves?
Yes, maintenance and capital expense reserves. 5-10% of rent for maintenance, 5-10% for capex separately.
Why does NOI matter for selling?
Cap rate-based valuation: Property Value = NOI / Market Cap Rate. Higher NOI directly raises property value.
Is NOI before or after tax?
NOI is pre-tax. Income tax depends on your situation and is calculated on net income after all deductions including mortgage interest and depreciation.
Estimates for planning only. NOI depends on realistic vacancy, honest maintenance and management budgets, and expenses that actually recur. Confirm every figure with real operating statements before you buy, sell or refinance.