What is net operating income?
Net operating income (NOI) is the annual income a property produces after operating expenses but before debt service, depreciation, and income tax. It is the foundation of most real estate valuation metrics, including cap rate and DSCR.
The formula
NOI = Annual gross income − Annual operating expenses
Gross income includes rent and other income (parking, laundry, fees). Operating expenses include property taxes, insurance, maintenance, property management, and a vacancy allowance — but not mortgage payments or capital expenditures.
How to use it
- Enter the property's annual gross income.
- Enter its annual operating expenses.
For example, $120,000 of income against $45,000 of expenses gives an NOI of $75,000.
Why it matters
NOI lets you compare properties on operating performance alone, independent of how each is financed. A negative NOI signals a property that loses money before any mortgage is even considered.