Net Operating Income — almost everyone shortens it to NOI — is the single most important number in rental real estate. It measures how much cash a property actually produces from operations, before you pay the mortgage. Because it strips out financing, taxes you get on your personal return, and non-recurring costs, NOI lets you compare two buildings on the same street, in two different cities, or held by two different owners, on equal footing. Investors, lenders, and appraisers all anchor offers and loans to this one figure.
This calculator walks you from gross scheduled rent down to NOI, then divides by a target cap rate to show what the property should be worth in a market that demands that yield. Slide the inputs and every figure updates instantly, so you can stress-test a deal against vacancy shocks and expense overruns before you write an offer.
How to Use
- Enter Annual Gross Rental Income — the full scheduled rent for the year, before any vacancy. If you collect $3,000 a month, type 36000 here.
- Set Vacancy & Credit Loss as a percentage. Five percent is the default for a well-managed single-family home; apartments in softer markets run 8–10%, and you should push it higher when underwriting a Class-C property.
- Add Other Income — laundry machines, covered parking, storage lockers, pet rent, and late fees all count here. Leave it at zero if the building has none.
- Type Annual Operating Expenses. Include property tax, insurance, property management (typically 8–10% of collected rent), repairs, landscaping, snow removal, advertising, and the utilities the landlord pays. Do not include the mortgage principal or interest — NOI deliberately ignores debt.
- Optionally enter a Target Cap Rate to see the property's implied market value. Leave it at 7% for a generic US suburban rental, or raise it to 9–10% for a Class-B/C value-add deal.
The result card shows vacancy loss, effective gross income (EGI), the headline NOI, the operating expense ratio, and — when a cap rate is supplied — the estimated property value.
The NOI Formula
NOI is built in two short steps:
Effective Gross Income (EGI) = Gross Scheduled Rent − Vacancy Loss + Other Income
Net Operating Income (NOI) = EGI − Operating Expenses
Where:
- Vacancy Loss is simply the gross rent times the vacancy rate. On $36,000 of rent at 5%, that is $1,800.
- Other Income is everything the tenant pays you that is not base rent.
- Operating Expenses are the day-to-day costs of running the building. Mortgage payments, income taxes, and depreciation are explicitly excluded — those belong to your financing and tax situation, not to the property itself.
Once you have NOI, the cap-rate conversion is trivial:
Estimated Value = NOI ÷ Cap Rate
A property that throws off $22,200 of NOI in a 7% market is worth about $317,000. If investors demand a 9% yield instead, the same NOI supports only $247,000. Cap rates and values move in opposite directions — which is exactly why rising interest rates have pushed cap rates up and prices down since 2022.
What Counts as an Operating Expense?
This is where new investors most often go wrong. The IRS Schedule E lists both "operating" and "non-operating" lines, but NOI has a stricter rule. Include:
- Property tax and landlord-paid school/special assessments
- Hazard and liability insurance premiums
- Property management fees (often 8–10% of collected rent)
- Repairs and routine maintenance (plumbing calls, HVAC service, lawn care)
- Landlord-paid utilities (water, sewer, trash, gas in some apartments)
- Advertising, leasing commissions, and legal fees for evictions
- Condo or HOA dues on the building
Exclude:
- Mortgage principal and interest (debt service)
- Income tax owed by you as the owner
- Capital improvements that extend the building's life (a new roof, new HVAC) — these go on the balance sheet and are depreciated over time
- Depreciation itself
A useful sanity check: on a typical US rental, operating expenses run 35–50% of EGI. If your number comes in under 20%, you probably forgot a line item. If it is over 60%, the property may be over-leaky or poorly managed.
Examples
Example 1 — The textbook $36,000 duplex. A landlord collects $3,000 per month per unit on a two-unit duplex, grossing $72,000... no, this walk-through uses a single-family rental: $3,000 a month, $36,000 a year. Vacancy at 5% takes out $1,800. Other income is zero. Operating expenses — tax $4,200, insurance $1,800, management $3,600, repairs $2,400, landscaping $1,200 — total $12,000. EGI is $34,200 and NOI is $22,200. At a 7% cap rate, that implies a value of $317,143. That is the price a cash buyer should be willing to pay to hit a 7% unlevered return.
Example 2 — Adding other income. Suppose the same building also has a laundry room and a covered parking space that together bring in $2,500 a year. Now EGI becomes $36,700, NOI climbs to $24,700, and the 7%-cap value jumps to $352,857. Side income is often the difference between a deal that pencils and one that does not.
Example 3 — The million-dollar apartment building. A 10-unit apartment house collects $100,000 a year in rent, runs an 8% vacancy, takes in $10,000 of laundry and parking income, and carries $45,000 of operating expenses. EGI is $102,000 and NOI is $57,000. At a 6.5% market cap, the building is worth roughly $877,000 — a far cry from the $1,000,000 list price, which is exactly the kind of gap this calculator surfaces before you bid.
FAQ
What is net operating income (NOI)?
NOI is the annual profit a rental property generates from its operations, calculated as effective gross income minus operating expenses. It deliberately excludes mortgage payments, income taxes, and depreciation, so it reflects the building's raw earning power rather than the owner's financing choices.
Does NOI include the mortgage?
No. Mortgage principal and interest are debt service, not operating expenses. Lenders use NOI to compute the debt-coverage ratio (NOI ÷ annual debt service), which must usually be at least 1.20–1.25 for a loan to be approved. If you subtract the mortgage from NOI you get cash flow, not NOI.
How is NOI different from cash flow?
NOI is the property-level operating profit before financing. Cash flow is what lands in your bank account after the mortgage is paid. A property can have strong NOI but negative cash flow if the buyer paid too much and borrowed at a high rate. NOI measures the asset; cash flow measures your deal structure.
How do I turn NOI into a property value?
Divide NOI by the market capitalization rate. If comparable buildings sell at a 7% cap rate and yours produces $22,200 of NOI, the implied value is $22,200 ÷ 0.07 = $317,143. Cap rates move up when interest rates rise and down when investors are willing to accept lower yields for safety.
What is a good operating expense ratio?
For typical US rentals, operating expenses usually run 35–50% of effective gross income. Houses and small apartments tend toward the lower end; older, service-heavy apartment buildings and student housing run 50–60%. Below 20% almost always means a forgotten line item; above 60% suggests the building is poorly run or in a declining market.
Is vacancy included in NOI?
Yes. Vacancy loss is subtracted on the way to effective gross income. A property that could gross $36,000 but sits empty two months a year does not have $36,000 of operating income — it has closer to $30,000. Honest underwriting always applies a vacancy haircut rather than assuming 100% occupancy forever.
Does NOI include property management fees?
Yes. Property management — usually 8–10% of collected rent for a local firm — is a standard operating expense. Even if you self-manage, underwrite a management fee anyway; otherwise you are hiding the true cost of running the building and will overpay for it.
Disclaimer
This net operating income calculator is provided for informational purposes only and does not constitute financial, real-estate, tax, or investment advice. Results are based on the inputs you enter and the standard NOI formula; actual rents, expenses, and cap rates vary by market, property condition, and tenant mix. Always verify figures with a licensed property manager, appraiser, or real-estate attorney before making an offer or taking out a loan.