Net Operating Income Calculator
Calculate Net Operating Income (NOI) for real estate properties.
Subtract vacancy loss and operating expenses from gross rental income, then find cap rate.
Net Operating Income (NOI) Formula
Net Operating Income is the cornerstone metric in real estate investing. It measures the income a property generates from its operations, before financing costs and taxes.
NOI = Gross Rental Income − Vacancy Loss − Operating Expenses
Step-by-Step Calculation
Step 1: Gross Rental Income The total annual rent collected if the property were 100% occupied at market rates. Example: 10 units × $1,500/month × 12 months = $180,000
Step 2: Subtract Vacancy Loss No property is 100% occupied all year. Vacancy is calculated as a percentage of gross income.
Vacancy Loss = Gross Rental Income × Vacancy Rate
Typical vacancy rates:
- Class A apartments (luxury): 3–5%
- Class B/C apartments: 5–8%
- Commercial (office): 10–20%
- Industrial warehouses: 3–7%
Step 3: Subtract Operating Expenses All costs to run and maintain the property — EXCLUDING mortgage/debt service and depreciation.
What IS included in operating expenses:
- Property taxes
- Insurance premiums
- Property management fees (typically 8–12% of collected rents)
- Routine maintenance and repairs
- Landscaping, snow removal, cleaning
- Utilities paid by landlord (common areas)
- Advertising and leasing costs
What is NOT included (these come after NOI):
- Mortgage payments (principal + interest)
- Depreciation
- Income taxes
- Capital expenditures (major renovations)
Capitalization Rate (Cap Rate)
Once you have NOI, you can value the property or evaluate returns:
Cap Rate = (NOI ÷ Property Value) × 100
Or rearranged to find property value:
Property Value = NOI ÷ Cap Rate
Worked Example
A 10-unit apartment building, 6% vacancy, $3,200/month in operating expenses:
- Gross Rental Income: 10 × $1,500 × 12 = $180,000
- Vacancy Loss: $180,000 × 6% = $10,800
- Annual Operating Expenses: $3,200 × 12 = $38,400
- NOI = $180,000 − $10,800 − $38,400 = $130,800
- If property value is $1,500,000: Cap Rate = $130,800 ÷ $1,500,000 = 8.72%
Cap Rate Benchmarks
| Property Type | Typical Cap Rate |
|---|---|
| Single-family rentals (hot markets) | 3–5% |
| Multifamily apartments | 4–7% |
| Class A commercial office | 4–6% |
| Retail strip centers | 5–8% |
| Industrial / Warehouse | 4–7% |
| Rural or secondary markets | 7–12% |
Pro Tips
- A higher cap rate means higher return — but also higher risk or lower-demand location.
- NOI is the most important number a real estate investor must know cold.
- Lenders use NOI to calculate Debt Service Coverage Ratio (DSCR = NOI ÷ Annual Debt Service). Most lenders require DSCR ≥ 1.25.
- Growing NOI (through rent increases or expense reduction) directly increases property value.