Net Operating Income (NOI)

Real Estate Investing
Updated Apr 2026 • Has calculator

Annual gross income from a property minus all operating expenses, excluding mortgage payments, taxes on income, depreciation, and capital expenditures.

What is NOI?

Net Operating Income (NOI) is the foundational profitability metric for income-producing real estate. It equals effective gross income (rent collected plus other income) minus all operating expenses: property taxes, insurance, property management fees, maintenance, utilities, and vacancy allowance. NOI deliberately excludes debt service (mortgage P+I), income taxes, depreciation, and capital expenditures, making it a financing-neutral measure. Lenders divide NOI by the purchase price to get the cap rate, and divide NOI by annual debt service to calculate the Debt Service Coverage Ratio (DSCR). A positive NOI does not guarantee positive cash flow after mortgage payments.

Formula

NOI = Gross Income − Operating Expenses

Worked Example

Worked example — 8-Unit Apartment Building — Kansas City, MO

2024

Step 1  Gross scheduled rent: $10,400/mo × 12 = $124,800
Step 2  Vacancy (6%) and credit losses: −$7,488 | Effective gross income: $117,312
Step 3  Operating expenses: taxes $14,000 + insurance $6,000 + mgmt $9,300 + maintenance $8,000 = $37,300
Step 4  NOI = $117,312 − $37,300 = $80,012
Step 5  → At $1,000,000 purchase price: cap rate = $80,012 / $1,000,000 = 8.00%

Source: Investopedia — Net Operating Income (NOI) (2024-01-01)

Calculate NOI

Annual rent collected + other income (laundry, parking, etc.) after vacancy losses

Taxes, insurance, management, maintenance, utilities — excludes mortgage

Net Operating Income

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Not investment advice.

How to Interpret NOI

< 0
Negative NOI — operating losses; property is cash-flow negative before debt
0 – 25000
Low NOI — thin margins; financing costs likely exceed income
25000 – 75000
Moderate NOI — supports debt service on many loan structures
> 75000
Strong NOI — healthy income-producing property

📚 Real Estate Basics — Complete the path

  1. Cap Rate
  2. NOI
  3. Cash-on-Cash Return
  4. Gross Rent Multiplier
  5. 1% Rule
Sources
  1. Investopedia — Net Operating Income (NOI)