About This Calculator
Net Operating Income (NOI) is the single most important number in real estate investing. Every major valuation method — cap rate, cash flow, DCF analysis — starts with NOI. Understanding and optimizing NOI is how investors maximize property value.
Formula: NOI = Effective Gross Income − Operating Expenses. Note: NOI does NOT include mortgage payments (debt service) — it's a property metric, not an investor metric. This makes it useful for comparing properties regardless of how they're financed.
NOI directly drives property value in commercial and investment real estate: Value = NOI ÷ Cap Rate. Every $1,000 increase in annual NOI increases property value by $16,667 at a 6% cap rate, or $20,000 at a 5% cap rate. This is why operators focus heavily on income growth and expense control.
Frequently Asked Questions
What is NOI in real estate?▼
Net Operating Income (NOI) = Effective Gross Income − All Operating Expenses (excluding debt service). It measures a property's income-generating ability independent of financing. NOI is used to calculate cap rate (NOI ÷ Value), value property (NOI ÷ Cap Rate), and assess investment performance.
What expenses are NOT included in NOI?▼
NOI excludes: mortgage principal and interest payments (debt service), income taxes, depreciation, capital expenditures (major repairs/improvements), and loan fees. Including debt service gives you cash flow, which is investor-specific; NOI is property-specific.
How can I increase NOI?▼
Increase revenue: raise rents to market rate, reduce vacancy, add income streams (parking, storage, laundry, pet fees). Decrease expenses: contest property tax assessments, shop insurance annually, implement preventive maintenance, self-manage to eliminate management fees, and renegotiate service contracts.
What is the relationship between NOI and cap rate?▼
Cap Rate = NOI ÷ Property Value. Rearranging: Property Value = NOI ÷ Cap Rate. A $30,000 NOI property in a 5% cap market is worth $600,000. Increase NOI to $35,000 and the value jumps to $700,000 — a $100,000 increase in value from a $5,000 increase in annual income.
What is a good NOI for rental property?▼
There's no universal 'good' NOI — it's relative to property value (cap rate) and your investment goals. A $30,000 NOI on a $400,000 property = 7.5% cap rate (excellent in most markets). On a $600,000 property = 5% cap rate (acceptable in primary markets). Always evaluate NOI relative to property price.