NOI (Net Operating Income)
Real Estate / CashflowNOI (Net Operating Income) is the annual income a rental property generates after subtracting all operating expenses — but before paying the mortgage and before setting aside money for big capital expenditures like a new roof or HVAC. It is the cleanest measure of a property’s ability to produce income from its day-to-day operations, and it is the denominator in both cap rate and DSCR calculations.
How it works. Start with gross potential rent (what you would collect if the property were fully leased at market rates), subtract a vacancy allowance, then subtract all operating expenses: property taxes, insurance, property management fees, regular maintenance, utilities paid by the owner, and any other recurring costs of running the asset. What remains is NOI.
A typical NOI calculation on a single-family rental earning $24,000 in annual gross rent might subtract roughly $8,500 in operating expenses, leaving an NOI near $15,500. That NOI drives the property’s valuation via cap rate and determines whether a lender will lend via DSCR.
NOI excludes mortgage payments (principal and interest), capital expenditures (new roof, new HVAC), depreciation, and income taxes. A property can show a healthy NOI and still lose money every month if the debt is too heavy. Always run NOI and cashflow separately.
For building a complete operating budget, see property management and costs. For how NOI compares across markets, see best cashflow markets.