Net Operating Income (NOI) Calculator
Calculate Net Operating Income (NOI) for a rental property: gross rental income minus vacancy and operating expenses.
How to use this tool
- Enter gross annual rent, vacancy rate and annual operating expenses in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your net operating income (noi) and the full breakdown beneath it.
NOI is the foundation of commercial real estate valuation. It feeds directly into cap rate and DSCR calculations, making it essential for every investment analysis.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Effective Gross Income (EGI) = Gross Annual Rent × (1 − Vacancy Rate ÷ 100)
Net Operating Income (NOI) = EGI − Annual Operating Expenses
Expense Ratio (%) = Operating Expenses ÷ EGI × 100
How it works
This calculator works down a standard property income statement: it first deducts a vacancy allowance from gross rent to arrive at the income actually collected (effective gross income), then subtracts all operating costs — maintenance, insurance, property management, taxes — to reach NOI, the fundamental measure of a rental property's operating profitability.
The expense ratio shows what proportion of collected income is consumed by running costs; a ratio above 50 % is generally considered high for residential property. Debt service (mortgage payments) is excluded from NOI by convention, making it independent of financing structure.
Worked example
- Gross annual rent: $24,000; vacancy rate: 5%; annual operating expenses: $6,000.
- Vacancy loss = $24,000 × 0.05 = $1,200.
- Effective Gross Income = $24,000 − $1,200 = $22,800.
- NOI = $22,800 − $6,000 = $16,800.
- Expense Ratio = $6,000 ÷ $22,800 × 100 ≈ 26.32%.
Effective Gross Income = $22,800; NOI = $16,800; Expense Ratio = 26.32%
Common mistakes to avoid
- Omitting capital expenditure reserves from operating expenses -- major repairs (roof, HVAC, appliances) are not counted in annual expenses but must be reserved for; excluding CapEx overstates NOI and makes the property look more profitable.
- Using potential gross income without applying a vacancy rate -- a 0% vacancy assumption on a value-add or single-tenant property is unrealistic; even a 5% vacancy rate meaningfully reduces effective gross income and NOI.
- Including mortgage interest or principal payments in operating expenses -- NOI is explicitly a pre-financing number; adding debt service into expenses understates NOI and produces an incorrect cap rate when dividing into property value.
Key terms
- Gross rental income
- The total rent a property would generate if 100% occupied for the full year, before any vacancy or expense deductions.
- Vacancy rate
- The percentage of the year the property is expected to be unoccupied or generate no rent; typically 5–10% for residential property.
- Effective Gross Income (EGI)
- Gross rent minus the expected vacancy loss — the income a landlord can realistically plan to collect.
- Operating expenses
- Recurring costs of running the property: property tax, insurance, maintenance, management fees, and utilities paid by the owner. Excludes mortgage payments and capital expenditure.
- Expense ratio
- Operating expenses expressed as a percentage of effective gross income; a key indicator of how efficiently a property is being managed.
Frequently asked questions
- What expenses are NOT included in NOI?
- NOI excludes mortgage principal and interest, income taxes, depreciation, and capital expenditures (major repairs). It includes property taxes, insurance, maintenance, management fees, and utilities paid by the landlord.
- What is the 50% rule?
- The 50% rule is a quick estimate that operating expenses (excluding mortgage) will equal roughly 50% of gross rent. NOI ≈ gross rent × 50%. It's a rough screen, not a substitute for actual expense analysis.