How to Calculate Net Operating Income (NOI)

NOI is the single most important number in rental property analysis. It measures the property's operating income before financing and taxes — and it's independent of how you paid for the property.

What NOI Is

Net Operating Income (NOI) is the property's gross collected income minus all operating expenses. It tells you what the property produces as an operating business, before debt service, capital expenditures, and income taxes.

NOI = Gross Collected Income − Operating Expenses

What Counts as Operating Expenses

Operating expenses include:

• Property taxes
• Insurance
• Property management
• Repairs and maintenance
• Utilities (if paid by the owner)
• HOA fees
• Advertising and leasing costs
• General and administrative

What NOI does not include:

• Debt service (principal and interest)
• Capital expenditures (major replacements)
• Depreciation
• Income taxes
• Owner's personal expenses

Gross Collected Income vs. Scheduled Rent

Scheduled rent is what the lease says the tenant owes. Collected income is what actually arrives. The difference is vacancy and credit loss.

Gross Collected Income = Scheduled Rent − Vacancy − Credit Loss + Other Income

Other income might include laundry, parking, late fees, pet fees, or utility billback.

A Worked Example

A duplex rents for $1,200 per unit per month ($28,800/year scheduled). Vacancy runs 5%. Other income is $600/year (laundry). Operating expenses total $9,800/year.

• Scheduled rent: $28,800
• Vacancy loss (5%): −$1,440
• Other income: +$600
• Gross collected income: $27,960
• Operating expenses: −$9,800
• NOI = $18,160/year

Why NOI Matters

NOI is the foundation for nearly every other metric:

• Cap rate = NOI ÷ Property Value
• DSCR = NOI ÷ Annual Debt Service
• Cash flow = NOI − Debt Service − CapEx Reserves

Because NOI is independent of financing, two investors buying the same property should arrive at the same NOI — even if they use different loans.

The Principle

NOI measures the property. Cash flow measures what remains for the investor after financing. Don't confuse the two.

NOI is a property-level metric. Cash flow is an investor-level metric. A property with strong NOI can still produce weak cash flow if the debt service is too high — and that's a financing problem, not a property problem.