NOI Calculator
Build net operating income line by line. Enter the rent roll, occupancy and each operating expense to see effective gross income, total expenses, the expense ratio and NOI per unit.
Operating statement
Worked example
An 8-unit building rents for an average of $1,150 a unit and earns $200 a month from laundry. Gross potential income is $110,400 of rent plus $2,400 of other income, or $112,800 a year. At 94% occupancy, effective gross income is $106,032.
Expenses are $14,500 of property taxes, $6,800 of insurance, $9,600 of repairs, $8,483 of management at 8% of EGI, $7,200 of owner-paid water and common electric, $2,400 of reserves at $300 a unit, and $2,400 of other costs. That totals $51,383, or 48.5% of EGI.
Net operating income is $106,032 - $51,383 = $54,649 a year, about $6,831 per unit.
Why NOI matters
Net operating income is the profit a property produces from operations before any mortgage payments or income taxes. It is the foundation of almost every other measure investors and lenders use. The cap rate is NOI divided by price. The DSCR is NOI divided by debt service. Cash flow is NOI minus the mortgage. If NOI is wrong, every one of those numbers is wrong too.
This calculator builds NOI from individual expense lines, which is how you should underwrite any property you are serious about. Quick estimates such as an expense ratio or the 50% rule are fine for screening, but they hide the details that make one building better than another.
Where to get each number
- Rent and other income: the current rent roll and the trailing twelve months of actual collections. Compare with market rents for similar units.
- Occupancy: the building's history over the last two years and the local market rate. Use the lower of the two if they differ.
- Property taxes: the county assessor. Many counties reassess at the sale price, so estimate the tax at your purchase price, not the seller's.
- Insurance: a quote from your own agent, not the seller's policy.
- Repairs: the seller's records, checked against $600 to $1,200 per unit per year for typical small multifamily.
- Management: 6% to 10% of collections for most small buildings. Include it even if you self-manage.
- Utilities: actual bills for anything the owner pays, such as water, sewer, trash and common-area electricity.
- Reserves: $250 to $400 per unit per year for roofs, HVAC, appliances and other replacements.
What to leave out
NOI excludes mortgage principal and interest, depreciation, income taxes and one-time capital improvements such as a new roof or a full renovation. Reserves cover capital items gradually, so you do not also subtract the big projects when they happen. Our guide on how to calculate NOI covers the gray areas in more detail.
Checking the result
The calculator shows total expenses as a percentage of effective gross income. For small multifamily, 40% to 50% is typical. If your ratio is far below that, check for missing management, reserves or a tax increase after the sale. If it is far above, look for an expense that can be cut or a utility that can be billed back to tenants.
NOI per unit is useful for comparing buildings of different sizes, alongside the price per unit. Once you trust the NOI, see how far occupancy can fall before the property stops covering its mortgage with the break-even occupancy calculator.
How NOI drives value
Income property is valued on its NOI. Divide NOI by the market cap rate and you have an estimate of value, so every dollar of NOI is worth many dollars of price. At a 7% cap rate, adding $1,000 a year of NOI, for example by billing back water or trimming an insurance premium, adds roughly $14,000 of value. Cutting NOI by the same amount takes that value away, which is why sellers push expenses down and buyers should push them back up to realistic levels.
Frequently asked questions
How do you calculate NOI?
NOI = effective gross income - operating expenses. Effective gross income is gross potential rent plus other income, multiplied by occupancy. In the example, $106,032 of EGI minus $51,383 of expenses is $54,649 of NOI.
Does NOI include the mortgage payment?
No. NOI is measured before debt service, so it can be compared across properties regardless of financing. Subtract the mortgage from NOI to get cash flow.
Are capital expenditures included in NOI?
One-time capital projects are not. Most investors include an annual replacement reserve instead, which spreads the cost of big replacements over time.
What is a normal expense ratio for a rental?
Small multifamily properties commonly run 40% to 50% of effective gross income. Newer buildings with tenant-paid utilities can be lower, older buildings with owner-paid heat higher.
Should management be included if I manage the property myself?
Yes. Lenders and future buyers will include it, and your time has value. Leaving it out overstates NOI and the property's value.
Is NOI the same as cash flow?
No. Cash flow is NOI minus mortgage payments and any capital spending beyond reserves. A property can have strong NOI and weak cash flow if it is heavily financed.
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Results are estimates for education only, not financial, tax or legal advice. Check numbers with your lender and advisors before you buy.