Real Estate NOI Calculator

What Is NOI?

NOI (net operating income) is a metric commonly used in real estate to determine the potential profit of an investment property. To calculate NOI, subtract the property’s operating expenses from its income. NOI does not include things like depreciation, capital expenditures, or amortization, so don’t mistake it for pure profit!

How to Calculate NOI

Gather as much property data as possible, including all of the property’s potential revenue streams and operating expenses. With this information in hand, open Rent to Retirement’s free NOI real estate calculator!

Ready to start? Follow the steps below, plugging your property data into the calculator’s highlighted cells.

Step 1. Enter Property Value and Purchase Price

First, enter the property’s market value and the amount you’ll be paying for it. Use the “Financed” column if you’ll be getting a mortgage and “Cash” if you don’t require financing.

Step 2. Enter Financing

Next, enter your loan details, including your down payment, closing costs, and interest rate. While closing costs vary by state and lender, they are usually around 2% of the purchase price. If you’re a cash buyer, put “100%” for the down payment and “0%” for the interest rate.

Step 3. Enter Rent Estimate and Operating Expenses

Now, tally your income and expenses, which include your monthly rent, annual property taxes, utilities, landscaping, and insurance premium. You’ll also need to enter your vacancy rate, maintenance rate, and property management rate as percentages of your gross scheduled income (GSI).

Let’s break those income streams and expenses down: 

Monthly Rent

Rent is the amount your tenants will pay you each month and your property’s main source of revenue. Determine how much you should charge for rent with a tool like Rentometer or the BiggerPockets Rent Estimator.

Property Taxes

Property taxes are public record, meaning you can visit your local tax assessor’s website and view the most recent tax bills for any property. Keep in mind that your taxes will likely increase once you purchase the property.

Utilities

Most tenants pay for their own utilities, in which case, enter “0” into the NOI calculator. If there are certain utilities you’ll be covering, call your local utility company to receive an estimate.

Landscaping

Landscaping services are typically the landlord’s responsibility. Search the web or local Facebook groups for landscapers and gather several quotes.

Insurance

You’ll need to purchase a landlord insurance policy for your new investment property. Call a few local insurance agents and collect multiple quotes!

Vacancy Rate

Vacancy rate indicates how often rental units are unoccupied throughout the year. Many landlords use an 8% vacancy rate to represent one month of lost rental income.

Maintenance Rate

Older houses require more maintenance, while move-in-ready turnkey rentals usually require less. For turnkey real estate, we recommend a 3% maintenance rate, but for older homes, anywhere from 8% - 20% might be sufficient!

Property Management Rate

Unless you plan to self-manage your rental property, you’ll need to account for property management fees. Most property managers charge between 8% and 12% of monthly rents.

Step 4. Calculate Your NOI!

After entering all income and expenses into the NOI real estate calculator, you’ll see your net operating income. Use this figure to determine whether the property is worth investing in, and make sure you compare the NOI of multiple investment properties to find the best deal for you!

Looking for High NOI Investment Properties?

Why Does NOI Matter?

By calculating NOI, you can quickly determine if a property is worth investing in, compare the potential profits of multiple properties, and decide whether to sell one property and buy another. It is also one of the driving factors in commercial property valuation. Investors must calculate NOI before calculating the cap rate—a metric that heavily influences the decision to buy since it measures the annual return on investment and stability of a property.

The NOI Formula

A net operating income calculator makes it easy to keep track of all rental income streams and operating expenses, but you can also reach this figure by hand. The NOI formula is simple:

NOI = Revenue – Operating Expenses

Revenue

Revenue consists of not only rents but also any other income streams generated by the property. This often includes late fees, parking fees, laundry room fees, and other earnings.

Operating Expenses

Operating expenses include property management fees, property taxes, maintenance, repairs, and insurance. They do not include things like mortgage payments, amortization, capital expenditures, income taxes, and other variable expenses.

NOI Formula Example

You’re evaluating a turnkey property, a newly renovated rental that will have very few (if any) repair and maintenance expenses in year one. First, let’s check out the property’s revenue:

• Rental income: $2,500/month
• Annual rental income = $2,500 x 12 (months) = $30,000

Next, tally up the property’s operating expenses:

• Expenses: $805/month
  • Property management: $250/month
  • Taxes: $180/month
  • Maintenance: $125/month
  • Insurance: $250/month 
• Annual operating expenses = $805 x 12 (months) = $9,660

Finally, subtract your annual expenses from your annual rental income to determine your annual NOI:

• $30,000 - $9,660 = $20,340 NOI

Other Crucial Investing Metrics

Net operating income is just one of several metrics that investors use to gauge the profitability of an investment property. Here are some other crucial investing formulas to add to your arsenal:

Cap Rate

Capitalization rate, or cap rate, measures the annual rate of return and stability of an investment property. A higher cap rate indicates a higher return but greater risk, while a lower cap rate indicates a lower return and less risk. To calculate cap rate, divide your annual NOI by the total property value.

Rental Yield

Rental yield measures a property’s annual rate of return through rental income. To calculate gross rental yield, divide the annual rental income by the property value. To calculate net rental yield, subtract your annual operating expenses from the annual rental income and divide that number by the property value.

Gross Rent Multiplier (GRM)

Gross rent multiplier is the ratio of a property’s market value to its projected rental income. To calculate GRM, simply invert the gross rental yield formula, dividing property value by annual gross rental income.

Cash Flow

Cash flow is a way of measuring the money moving in and out of an investment property, including money paid toward the property’s mortgage. To calculate cash flow, subtract your monthly operating expenses and mortgage payment from the property’s revenue.

Calculate NOI Before You Buy!

Now that you know how to calculate NOI, it’s time to put this formula to work and hunt for high NOI properties. If you’re not sure where to look, start with turnkey rentals, as they command high rents and have very few repair and maintenance expenses. Rent to Retirement can help you find a profitable property today!

NOI Calculator FAQs

How Do You Calculate Your NOI?

To calculate NOI, subtract your operating expenses from your gross operating income. Be sure to factor in vacancy and exclude mortgage payments, amortization, depreciation, capital expenditures (CapEx), and income taxes from your operating expenses.

What Is a Good NOI Percentage?

The higher your NOI, the better. However, a high NOI doesn’t guarantee a profit, as this metric only accounts for normal operating expenses. You’ll need to compare your NOI to “below the line” items, such as your mortgage payment, amortization, depreciation, capital expenditures, and income taxes, to determine your net profit.

How to Calculate NOI with Cap Rate and Price?

To estimate your NOI, multiply the property’s cap rate by its value. For example, if the cap rate is 8% and the property value is $500,000, you can expect your NOI to be around $40,000. Keep in mind that your actual net operating income will depend on your operating expenses and total revenue.