Net Operating Income Formula

Net Operating Income Formula:

\[ NOI = \text{Rental Income} - \text{Operating Expenses} \]

Net Operating Income (NOI):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Net Operating Income?

Net Operating Income (NOI) is a key financial metric in real estate that represents the property's profitability before financing costs and taxes. It is calculated as rental income minus operating expenses.

2. How Does the Calculator Work?

The calculator uses the NOI formula:

\[ NOI = \text{Rental Income} - \text{Operating Expenses} \]

Where:

\( \text{Rental Income} \) — Total income from property rentals (USD)
\( \text{Operating Expenses} \) — All property operating costs excluding financing (USD)

Explanation: NOI measures the property's ability to generate income from operations, excluding the effects of financing and tax strategies.

3. Importance of NOI Calculation

Details: NOI is crucial for real estate investors to assess property performance, determine property value through capitalization rates, and compare investment opportunities across different properties.

4. Using the Calculator

Tips: Enter rental income and operating expenses in USD. Both values must be non-negative. Operating expenses should include property management, maintenance, utilities, insurance, and property taxes, but exclude mortgage payments and income taxes.

5. Frequently Asked Questions (FAQ)

Q1: What is included in operating expenses?
A: Operating expenses include property management fees, maintenance and repairs, utilities, property insurance, property taxes, and other day-to-day operational costs.

Q2: What is excluded from NOI calculation?
A: NOI excludes mortgage payments, capital expenditures, income taxes, depreciation, and amortization.

Q3: How is NOI used in real estate valuation?
A: NOI is used to calculate property value through the capitalization rate formula: Property Value = NOI / Cap Rate.

Q4: What is a good NOI for rental properties?
A: A good NOI varies by market and property type, but generally, properties with NOI that covers debt service with positive cash flow are considered healthy investments.

Q5: Can NOI be negative?
A: Yes, if operating expenses exceed rental income, NOI will be negative, indicating the property is operating at a loss before financing costs.