Metrics
What Is Net Operating Income (NOI)?
Net operating income is what a property earns in a year after operating expenses but before the mortgage. It is the foundation of nearly every real estate metric.
NOI = (Gross income − Vacancy) + Other income − Operating expenses
Operating expenses include property taxes, insurance, management, repairs, utilities, and a capital reserve, but not the mortgage, depreciation, or one-time capital projects. Because cap rate, DSCR, and value all rest on it, an NOI that is off makes everything downstream wrong.
The two lines investors most often miss are a management fee (count it even if you self-manage) and a reserve. Build it on the NOI calculator, and learn how to rebuild a seller's version in rebuilding the seller's NOI.
See it on a real deal
RVP Underwriter computes this from your documents automatically, with every figure shown and sourced. Underwrite a deal free.
Questions
Does NOI include the mortgage?
No. NOI is calculated before financing so it describes the property itself, letting buyers with different loans compare it. Your mortgage comes out after NOI to give cash flow.
Related terms
Part of the RVP Underwriter glossary of income-property underwriting terms. Browse all definitions, or put them to work with the free calculators.