Glossary
NOI (net operating income)
NOI (net operating income) is a rental's yearly income after vacancy and operating costs, before any mortgage payment. It measures what the property earns on its own.
Because NOI ignores the loan, you can compare properties no matter how they are financed. It feeds the cap rate and some lenders' DSCR math.
Buyers and lenders look at NOI to judge what a rental can support. Two houses with the same rent can have very different NOI once taxes, insurance and HOA dues are counted.
How to calculate it
- Start with gross yearly rent.
- Subtract vacancy to get effective gross income.
- Subtract operating costs: taxes, insurance, repairs, management, HOA and any owner-paid utilities.
Run The Deal's NOI leaves out the capex reserve and the mortgage. Both come out later, in cash flow. Some investors put capex inside NOI, so check how a number was built before you compare.
- Gross rent ($2,000 x 12)
- $24,000
- Vacancy (5%)
- minus $1,200
- Effective gross income
- $22,800
- Repairs (5% of rent)
- minus $1,200
- Management (8% of rent)
- minus $1,920
- Property taxes
- minus $2,400
- Insurance
- minus $1,440
Percentages match Run The Deal's defaults. Use your own market's numbers.
Common mistakes
- Subtracting the mortgage. NOI never includes debt service.
- Skipping vacancy or management because you plan to self-manage. Your time still has a cost.
- Using a seller's NOI without checking the tax bill after your purchase.
Run the full breakdown in the rental property calculator.
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