NOI Calculator (Net Operating Income)
Net operating income is a rental's yearly income after vacancy and operating costs, before the mortgage, depreciation and income tax. Enter rent, other income, vacancy and operating costs, and this NOI calculator does the rest. A duplex renting for $2,500 a month with $9,600 of yearly costs nets about $19,470. Accurate bookkeeping for rental properties makes the cost line easy to fill in.
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How to use the NOI calculator
Enter yearly or monthly figures for:
- Rent: what all units would bring in fully leased at current rents.
- Other income: laundry, parking, pet rent, storage, late fees you actually collect.
- Vacancy: as a percentage of gross income. Include credit loss (rent you never collect) if you want to be conservative.
- Operating costs: property tax, insurance, repairs and maintenance, utilities you pay, management, HOA dues, landscaping, snow removal, pest control, advertising and legal.
The calculator returns net operating income.
The NOI formula
- Gross potential income = rent + other income
- Effective gross income = gross potential income - vacancy and credit loss
- NOI = effective gross income - operating expenses
Leave out mortgage principal and interest, depreciation, income taxes and capital improvements. Those are real costs, but they’re about you and your financing, not about how the property performs.
A worked NOI example
A duplex with two units at $1,250 a month each, plus $600 a year in pet rent:
- Rent: $2,500 x 12 = $30,000
- Other income: $600
- Gross potential income: $30,600
- Vacancy at 5%: $1,530
- Effective gross income: $29,070
Operating costs for the year:
| Expense | Annual |
|---|---|
| Property tax | $3,600 |
| Insurance | $1,800 |
| Repairs and maintenance | $2,400 |
| Water, sewer and trash | $1,200 |
| Lawn and snow | $600 |
| Total | $9,600 |
NOI: $29,070 - $9,600 = $19,470.
There’s no management fee here because the owner self-manages. If you plan to hire a manager later, or you’re comparing with a listing that includes one, add it. Many managers charge a percentage of collected rent, so ask local firms for a quote.
What a good NOI result looks like
A healthy NOI does two jobs. It covers the mortgage with room to spare, and it holds up when costs rise. On this duplex, a $300,000 price gives a 6.49% cap rate. If annual debt service is $15,000, NOI covers it about 1.3 times, which most lenders are comfortable with on a small rental.
Watch the expense ratio too. Here operating costs are 33% of effective gross income. If your figure is much lower than other properties you look at, double-check that you haven’t left something out, usually repairs or insurance.
What counts as an operating expense
A quick sort for the lines that cause the most confusion:
| Item | In NOI? |
|---|---|
| Property tax, insurance, HOA dues | Yes |
| Repairs (fixing a leak, patching drywall) | Yes |
| Replacing the roof or furnace | No, it’s a capital improvement |
| Mortgage principal and interest | No, it’s debt service |
| Depreciation | No, it’s a tax deduction, not a cash cost |
| Your own income tax | No |
Limits and caveats
- A seller’s NOI isn’t yours. Listings often show NOI with no vacancy, no management and last year’s insurance premium. Rebuild it with your own numbers.
- Taxes can reset. In many states, property tax is reassessed after a sale. Use the tax you’ll pay, not what the seller paid.
- One year at a time. NOI is a snapshot. A big repair year or a long vacancy can drop it a lot.
- Capex reserves are your call. Decide whether to include them and stay consistent.
Questions landlords ask
The questions we get most, each answered in a paragraph.
Does NOI include the mortgage payment?
No. NOI measures what the property earns on its own, regardless of how it's financed. Principal and interest are debt service, which you subtract from NOI to get cash flow. That's why two buyers of the same building see the same NOI but different cash flow.
Is property tax included in NOI?
Yes. Property tax is an operating expense and comes out before NOI. So do insurance, repairs and maintenance, utilities you pay, property management, HOA dues, landscaping, pest control and advertising. Income tax, depreciation and loan payments do not.
Should I include capital expenditures in NOI?
Actual capital improvements, such as a new roof, are usually left out of NOI because they're added to the property's basis and depreciated. Some investors include a yearly reserve for future replacements to keep the number conservative. Either way is defensible; just be consistent, and say which you used when you compare deals.
What is a good NOI for a rental property?
NOI is a dollar figure, so whether it's good depends on the price. Divide it by the purchase price to get the cap rate, or compare it with your annual mortgage payments. If NOI is less than 1.2 to 1.25 times your annual debt service, many lenders will see the loan as tight.