How to calculate NOI.
Net operating income is the foundation of almost every rental metric: cap rate, DSCR and property value all start from it.
The formula
NOI = gross rent − vacancy and credit loss + other income − operating expenses
Step by step
- Gross scheduled rent. What the property would earn if every unit were rented all year.
- Subtract vacancy and credit loss. Months empty between tenants and rent you fail to collect, often budgeted as a percentage of gross rent.
- Add other income. Parking, laundry, storage or pet fees.
- Subtract operating expenses. Property tax, insurance, maintenance and repairs, property management, HOA dues, utilities you pay, landscaping and similar recurring costs.
What NOI excludes
- Mortgage principal and interest. NOI describes the property, not your financing.
- Capital improvements such as a new roof, although many investors budget reserves for them separately.
- Depreciation and income taxes, which depend on the owner.
A worked example
| Gross rent ($2,800 × 12) | $33,600 |
| Vacancy (5%) | −$1,680 |
| Property tax | −$4,500 |
| Insurance | −$1,800 |
| Maintenance (5% of rent) | −$1,680 |
| Management (8% of collected rent) | −$2,554 |
| Net operating income | $21,386 |
On a $300,000 purchase, that NOI gives a 7.13% cap rate. These are the example numbers in our rental property calculator, which does this math for you.
How NOI connects to other metrics
- Cap rate = NOI ÷ price. See what is a good cap rate.
- Value = NOI ÷ market cap rate, which is why raising NOI raises what a property is worth.
- DSCR = NOI ÷ annual debt payments in our rental model; lenders often use a rent-based version instead. See DSCR loans explained.
Let the calculator build NOI for your property.
Analyze a rental property →General information for U.S. landlords, not legal, tax or insurance advice. Rules vary by state and city; confirm requirements with a local attorney, licensed agent or tax professional.