Net Operating Income (NOI) Calculator (rental property, cap rate & value)

Understanding the net operating income (NOI) calculator — concept and principle

Net operating income (NOI) is the yearly income a rental property produces after operating expenses but before mortgage payments and income tax. Investors use it to compare properties, estimate value with a capitalization rate and check whether rents can support a loan.

$12,300 a month of rent and other income becomes $84,802 of NOI after vacancy and running costs; at a 6% cap rate that supports a value of $1,413,373.

How it is calculated

Potential gross income = (rent from all units + other income) × 12.
Effective gross income (EGI) = potential income − vacancy and collection loss.
Operating expenses = property tax + insurance + management (% of EGI) + repairs + owner-paid utilities + other running costs.
NOI = EGI − operating expenses.
Cap rate = NOI ÷ price; value at a market cap rate = NOI ÷ cap rate.

The principle

NOI describes the property itself, independent of who owns it or how it is financed. That is why mortgage payments, depreciation, income tax and major capital improvements are left out. Because a buyer is essentially purchasing a stream of NOI, dividing NOI by a market cap rate (the yield buyers currently accept for similar properties) gives an estimate of value. A lower cap rate means buyers pay more for each dollar of income.

Worked example

Default inputs: rent 12,000 USD and other income 300 USD a month, vacancy 5%, tax 18,000, insurance 6,000, management 8%, repairs 9,000, utilities 7,200, other 4,000 USD a year, price 1,600,000 USD, market cap rate 6%.

Potential gross income = 12,300 × 12 = 147,600.00 USD.
Vacancy loss = 5% × 147,600 = 7,380.00 USD; EGI = 140,220.00 USD.
Management = 8% × 140,220 = 11,217.60 USD; total operating expenses = 55,417.60 USD (expense ratio 39.5%).
NOI = 140,220 − 55,417.60 = 84,802.40 USD a year, 7,066.87 USD a month.
Cap rate at your price = 84,802.40 ÷ 1,600,000 ≈ 5.3%; value at a 6% market cap rate = 1,413,373 USD.

Each point is the calculator re-run with only “Rent from all units, per month” changed; the gold point is the default example. Change the inputs above and this chart follows your numbers.

Rent from all units, per month	Net operating income (NOI) per year
3,000	-$9,589.60
6,000	$21,874.40
9,000	$53,338.40
12,000	$84,802.40
15,000	$116,266.40
18,000	$147,730.40
24,000	$210,658.40

How to read the result

If your purchase price gives a lower cap rate than the market rate, you are paying more than the income alone supports, as in this example. Lenders compare NOI with annual debt service (the debt service coverage ratio). Expense ratios vary by property type and age; older buildings and those where the owner pays utilities usually run higher.

Common mistakes

Subtracting mortgage payments, which belong to cash flow after financing, not NOI.
Using a seller's NOI with unrealistically low vacancy or missing management costs.
Treating a new roof or major renovation as an operating expense.
Comparing cap rates across very different markets or property types.

Keep in mind: NOI and cap-rate values are estimates that depend on your assumptions and local markets. Get professional advice before buying; this is not financial advice.

Frequently asked questions

Does NOI include mortgage payments?

No. NOI is before debt service, so properties can be compared regardless of financing.

What is a good cap rate?

It depends on location, property type and interest rates; compare with recent sales of similar properties.

Should I include a management fee if I manage the property myself?

Yes, valuers usually include it, because a buyer would have to pay for management.

Sources: Appraisal Institute, The Appraisal of Real Estate (income capitalization approach) · Geltner, Miller, Clayton & Eichholtz, Commercial Real Estate Analysis and Investments

Checked 9 Nov 2026. Nareit REIT Glossary, “Net Operating Income” (income left after all necessary operating expenses) and “Capitalization Rate” (NOI ÷ current market value or purchase price).

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