Net Operating Income (NOI) is the single most important number in rental real estate. It tells you how much cash a property actually produces from operations — before you subtract the mortgage — and it drives the value an investor will pay. This NOI calculator from Smekys walks you straight down the income statement: start with full-rent income, add ancillary income, subtract the vacancy allowance, then subtract operating expenses, and land on NOI. From there it derives the effective gross income, the monthly cash flow, and the capitalization rate.
The point of NOI is to compare two rental properties on the same terms. A duplex with a big mortgage and a strip mall with no debt can both be judged by NOI, because debt service is a financing choice, not an operating reality.
How to Use
- Enter your Annual Rental Income — the total base rent you would collect if the building were 100% occupied for the full year. Use market rent, not what a discounted tenant happens to pay.
- Add Other Annual Income — laundry machines, parking spaces, storage lockers, vending, and pet fees. These are real revenue and belong in NOI.
- Set Vacancy & Credit Loss as a percentage. Five percent is a reasonable baseline for a stable market; raise it for soft neighborhoods or seasonal properties.
- Type your Annual Operating Expenses — property tax, insurance, landscaping, maintenance, property management, and any utilities you pay. Do not include the mortgage interest or principal; NOI deliberately ignores debt.
- Enter the Property Value / Purchase Price so the engine can convert NOI into a capitalization rate.
The result card builds the income statement top to bottom: Gross Potential Income, Vacancy Loss, Effective Gross Income, then the highlighted NOI. It also shows the monthly NOI, the cap rate, and the operating expense ratio — the share of effective gross income eaten by costs.
The NOI Formula
NOI comes from the standard income approach taught by the National Association of Realtors and used by commercial appraisers:
NOI = (Rental Income + Other Income) × (1 − Vacancy %) − Operating Expenses
The sequence matters. First you build Gross Potential Income (rent plus other income). Then you deduct vacancy and credit loss to reach Effective Gross Income (EGI) — the money you realistically collect. Only after EGI do you subtract operating expenses. Mortgage payments, capital improvements, and depreciation never enter NOI, which is why it is considered an apples-to-apples operating metric.
Using the default numbers — $30,000 rent, $2,000 other income, 5% vacancy, and $12,000 expenses — Gross Potential Income is $32,000. Vacancy loss is 5% of that, or $1,600, leaving Effective Gross Income of $30,400. Subtract the $12,000 in operating expenses and NOI is $18,400. At a $300,000 purchase price, the capitalization rate is $18,400 ÷ $300,000 = 6.13%.
Cap Rate Turns NOI Into Value
The capitalization rate is NOI divided by the property value:
Cap Rate = NOI ÷ Property Value
Flip the formula and you get implied value: Value = NOI ÷ Cap Rate. If buyers in your area pay a 6.5% cap for similar buildings, an $18,400 NOI supports a price of about $283,000. When a seller asks $350,000 for the same NOI, the implied cap rate drops to 5.26% — rich by comparison. Watching how price moves the cap rate is the fastest way to tell whether a deal is aggressive or cheap.
Examples
Example 1 — A single-family rental. You collect $30,000 a year in rent and $2,000 from a parking space. Assume 5% vacancy and $12,000 of taxes, insurance, and maintenance. The calculator returns a Gross Potential Income of $32,000, Vacancy Loss of $1,600, Effective Gross Income of $30,400, and a highlighted NOI of $18,400. Monthly NOI is about $1,533, and at a $300,000 price the cap rate is 6.13%.
Example 2 — A no-frills duplex. Rent is $48,000, there is no other income, vacancy is set to 3%, and expenses run $15,000. Gross Potential Income is $48,000, vacancy is $1,440, EGI is $46,560, and NOI is $31,560. At a $450,000 purchase price the cap rate is roughly 7.0% — a solid number for a working-class neighborhood.
Example 3 — A large commercial building. Annual rent is $1,200,000, vacancy is 5%, and operating expenses are $400,000. EGI lands at $1,140,000 and NOI is $740,000. At a $1,500,000 value the cap rate is 49.33% — an unusually high yield that usually signals a distressed sale or a data error worth double-checking before you offer.
FAQ
What is a good NOI for a rental property?
NOI itself is a dollar figure, not a benchmark — its value depends on the price you pay. The useful comparison is the cap rate. In most US markets, 5%–8% is a normal cap for stabilized rental property; anything above 8% usually carries more risk, and below 5% means you are paying a premium for stability.
Does NOI include the mortgage payment?
No. Net Operating Income deliberately excludes debt service — principal and interest on the loan. That is the whole point: NOI isolates the operating performance of the building from your personal financing choices. What is left after the mortgage is cash flow, not NOI.
What is the difference between NOI and cash flow?
NOI is the property's operating income before debt. Cash flow is what actually hits your bank account after you make the mortgage payment. Two properties with identical $18,400 NOIs can produce very different cash flows if one was bought with all cash and the other with a 20% down loan.
Should I include vacancy loss in NOI?
Yes. A realistic NOI assumes some empty units and occasional non-payment. If you ignore vacancy and book 12 months of full rent, your NOI — and the value derived from it — will be inflated. A 5%–10% vacancy reserve keeps your estimate honest.
What counts as an operating expense?
Operating expenses are the recurring costs of running the property: property tax, insurance, landscaping, repairs, property management, and utilities you pay. Capital improvements — a new roof or an addition — are not operating expenses; they are capitalized and depreciated over time, so they stay out of NOI.
How do I calculate the cap rate from NOI?
Divide NOI by the property's market value and multiply by 100. For example, an $18,400 NOI on a $300,000 building gives $18,400 ÷ $300,000 = 0.0613, or a 6.13% cap rate. Use the Property Value field in this calculator to see it instantly.
Disclaimer
This NOI calculator from Smekys is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice. Figures are estimates based on the inputs you enter and the standard income-approach formula; actual vacancy, expenses, and market values vary by location, tenant quality, and economic conditions. Always confirm operating numbers with a licensed appraiser, property manager, or real estate professional before making an investment decision.