NOI Calculator
Net operating income is what a property earns after running costs but before the mortgage: NOI = effective gross income − operating expenses. It measures the property's own earning power, and it is the number that drives cap rate and valuation.
Use this NOI calculator to build a rental property's net operating income line by line. Enter the rent and other income, a vacancy allowance and each operating expense, and it returns the effective gross income, total expenses and the NOI — annual and monthly — the figure lenders and appraisers use to value the property.
Enter the rent, vacancy and each operating expense, then press Calculate to see the net operating income.
How the NOI calculator works
Net operating income is the single most important number in income-property analysis, because almost everything else is built on top of it. It answers a clean question: setting aside how the property is financed, how much does it actually earn from operations each year? This calculator builds that figure the standard way. It annualises the rent and other income, trims it with a vacancy allowance to reflect real-world occupancy, and then subtracts every operating expense to arrive at the NOI.
What you deliberately will not see here is the mortgage. NOI stops before debt service on purpose, so it describes the property rather than the buyer. That is exactly what makes it so useful downstream: divide NOI by the price for the cap rate, divide it by a market cap rate to estimate value, or carry it into the DSCR and cash-on-cash calculations once financing is added back.
The NOI formula
where effective gross income allows for vacancy:
- Gross income — annual rent plus other income
- Vacancy — an allowance for empty and unpaid months
- Operating expenses — tax, insurance, management, maintenance, utilities, HOA and more — never the mortgage
What belongs in operating expenses — and what doesn't
Getting the expense list right is where NOI is won or lost. Include everything needed to run the property: property tax, insurance, management, repairs and maintenance, owner-paid utilities, HOA dues, landscaping and accounting. Exclude three things that trip people up. The mortgage is financing, not operations. Income tax and depreciation belong to the owner's tax return, not the property. And large one-off capital expenditures — a new roof, a full HVAC replacement — are typically kept separate from routine operating costs, though prudent investors set aside reserves for them. Mixing these in is the most common way an NOI ends up misleading.
Why NOI drives value
Commercial and investment property is priced on its income, and NOI is that income. The income approach to valuation simply divides NOI by a market capitalization rate: at a 6% cap rate, every extra $1,000 of NOI adds roughly $16,700 of value. That leverage cuts both ways and explains why experienced operators obsess over expenses — shaving a recurring cost or lifting rent raises NOI permanently, and the value gain is a multiple of the annual saving. It is also why a seller's “pro forma” NOI deserves scrutiny: optimistic expense figures inflate both the NOI and the asking price.
The operating expense ratio
Once you have NOI, one quick companion metric is worth knowing: the operating expense ratio (OER), which is total operating expenses divided by effective gross income. It tells you how much of each rent dollar is eaten by running the property. A well-run single-family or small multifamily rental often lands somewhere around 35% to 45%, while older buildings, owner-paid utilities or heavy management push it higher. The OER is a fast sanity check on a deal: a suspiciously low ratio usually means an expense has been left out — the classic culprits are management, maintenance reserves and vacancy — while a very high ratio flags a property that is costly to operate relative to the rent it commands.
Estimate only — not investment advice. Expense and vacancy assumptions vary widely by property and market; use actual figures and set aside reserves for capital items before relying on any result.
How to use it & key terms
Enter the rent, other income, vacancy allowance and each annual operating expense, then press Calculate to see the effective gross income, total expenses and the NOI.
| Term | What it means |
|---|---|
| NOI | Net operating income — income after operating costs, before the mortgage and tax. |
| Gross income | All rent and other income before deductions. |
| Effective gross income | Gross income after the vacancy allowance. |
| Operating expenses | Running costs: tax, insurance, management, repairs, utilities, HOA. |
| Vacancy allowance | A percentage set aside for empty or unpaid months. |
| Capital expenditure | Big one-off improvements, kept out of operating expenses. |
Five levers that raise NOI
Because value is NOI divided by a cap rate, a permanent gain in operating income is worth a multiple of itself in price — so it pays to know where the levers are. Five practical ones do most of the work:
- Move rents to market. Below-market leases are the most common hidden upside; closing the gap at renewal flows straight to NOI.
- Add income streams. Parking, storage, laundry, pet rent or utility recovery lift effective gross income without buying more building.
- Trim controllable expenses. Re-shop insurance, renegotiate management and cut energy waste — recurring savings count every year.
- Reduce vacancy and turnover. Tenants who renew avoid the make-ready and lost-rent costs that quietly erode income.
- Appeal the property-tax assessment. Taxes are often the largest line item, and a successful appeal permanently lowers it.
Notice what is not on the list: refinancing. Cheaper debt improves your cash flow, but it never changes NOI, because NOI is measured before financing — and that separation is exactly what makes it a clean yardstick for comparing properties.
Sources & methodology
The calculator uses the standard net-operating-income build-up: annualise gross rent and other income, subtract a vacancy and credit-loss allowance for effective gross income, then subtract operating expenses (management applied as a percentage of collected rent) to reach NOI. Debt service, income tax, depreciation and capital expenditures are excluded, matching the conventional definition used in appraisal and lending.
Sources: Standard real-estate net operating income definition (effective gross income minus operating expenses) used in the income approach to valuation.
Normalizing NOI when you review a deal
The net operating income a seller presents and the one you should actually underwrite are rarely the same figure, and the work of reconciling them is called normalizing. The goal is to rebuild NOI on consistent, market-based assumptions so that every deal you look at is measured the same way. Two properties can look identical on a listing yet underwrite very differently once their numbers are put on the same footing; skip this step, and you are comparing one owner's accounting quirks with another's rather than the properties themselves. The best starting point is the property's trailing twelve months of operating figures — the T-12 — because it shows what the building actually did, not what a projection hopes it will do.
From there you make a series of honest adjustments. Add a management fee even if the current owner self-manages, since the next buyer's costs should reflect paying for that work. Swap an optimistic full-occupancy assumption for a realistic vacancy allowance. Include a recurring maintenance and reserve line so routine repairs are not quietly missing. Strip out one-time and non-property items — a single legal bill, an owner's personal expenses run through the books — that will not recur for you. And revisit property taxes, because in many places a sale triggers a reassessment that raises the bill well above what the seller has been paying. The aim is not to be pessimistic but to be realistic about a stranger's building, keeping every assumption defensible and applied identically across deals.
The reason this matters so much is leverage in the valuation. Because value is NOI divided by a market cap rate, a normalized NOI that lands even a few thousand dollars away from the seller's changes the price you should be willing to pay by a multiple of that gap. Normalizing is also your defense against a polished pro forma, which tends to pair best-case rents with thin expenses. Underwrite to your own normalized figure, treat the seller's projection as upside to be earned rather than paid for, and you end up paying for the income the property genuinely produces. It is slower than trusting the number on the flyer, but it is the difference between buying an asset and buying someone's optimism.
Frequently asked questions
What is net operating income (NOI)?
The annual income a property produces after operating expenses but before debt service and income tax. It measures the property's own earning power, independent of financing, which is why lenders, appraisers and investors rely on it.
How do you calculate NOI?
Start with gross rent plus other income, subtract a vacancy and credit-loss allowance for effective gross income, then subtract operating expenses such as taxes, insurance, management, maintenance, utilities and HOA dues.
What is included in operating expenses?
Recurring costs of running the property: property taxes, insurance, management, repairs and maintenance, owner-paid utilities, HOA dues, landscaping and similar items needed to keep it operating.
What is not included in NOI?
It excludes the mortgage (principal and interest), income tax, depreciation, and large capital expenditures like a new roof or HVAC. Leaving out financing and tax keeps NOI focused on operating performance.
What is the difference between NOI and cash flow?
NOI is income before the mortgage. Cash flow subtracts the debt service too, leaving the cash that reaches your pocket. A property can have healthy NOI but thin cash flow if it carries a large loan.
Why does NOI matter?
It drives valuation and lending. Divide it by price for the cap rate, or by a market cap rate to estimate value. Because it strips out financing, it lets you compare properties on operating merits.
Does NOI include vacancy?
Yes, indirectly — the standard calculation subtracts a vacancy and credit-loss allowance before expenses, giving effective gross income. That makes the NOI more realistic than assuming full occupancy.
How do you use NOI to value a property?
Divide NOI by a market cap rate: value = NOI ÷ cap rate. At $22,000 of NOI and a 6% cap rate, implied value is about $367,000. This income approach is central to commercial appraisal.
Can NOI be negative?
Yes. If expenses and vacancy exceed the income collected, NOI is negative — the property loses money before any mortgage. That flags rents too low, expenses too high, or an over-severe vacancy assumption.
Is depreciation an operating expense?
No. Depreciation is an accounting deduction on your tax return, not a cash cost of running the property, so it is excluded from operating expenses and from NOI. NOI is built only from the property's actual operating costs; depreciation and income tax belong to the owner, not the property.
Does NOI include debt service?
No. NOI stops before the mortgage on purpose. Debt service — your principal and interest — is a financing cost that depends on the buyer, not the property, so it is left out. Subtract debt service from NOI and you get cash flow, the money that reaches your pocket.