How to Calculate NOI on a Rental Property (With Real Examples)

Net Operating Income (NOI) is arguably the single most important number in rental property investing. It’s the foundation for calculating cap rate, property valuation, and DSCR — and it’s the number lenders care about most when underwriting your loan.

The NOI Formula

The key word is “operating.” NOI does not include mortgage payments, capital expenditures, or depreciation. It measures the property’s ability to generate income independent of how you financed it.

Step-by-Step: Calculate NOI on a Real Property

Let’s walk through a real example — a duplex in Toledo, Ohio purchased for $130,000 that rents for $1,100/month total.

Step 1: Gross Rental Income — $1,100/mo × 12 = $13,200/year

Step 2: Subtract Vacancy — Assume 8% vacancy: $13,200 × 0.08 = $1,056. Effective income: $12,144

Step 3: Subtract Operating Expenses

Property taxes: $1,800/yr

Insurance: $960/yr

Maintenance (budget 5% of rent): $660/yr

Management (10% of collected rent): $1,214/yr

Total expenses: $4,634/yr

NOI = $12,144 − $4,634 = $7,510/year

With this NOI and a $130,000 purchase price, the cap rate is $7,510 ÷ $130,000 = 5.78%. That tells you the property yields 5.78% on an all-cash basis before financing.

Common NOI Mistakes

Forgetting vacancy. Even great properties have turnover. Budget 5-10% depending on your market.

Including mortgage payments. This is the most common error. NOI is before debt service. If you want to measure cash flow after mortgage, that’s a different calculation.

Underestimating maintenance. Budget at least 5% of gross rent for routine maintenance, more for older properties.

Ignoring management costs. Even if you self-manage, factor in 8-10% — because your time has value, and you may hire a PM later.

How NOI Connects to Other Metrics

Cap Rate = NOI ÷ Property Value. Higher NOI or lower price = higher cap rate.

DSCR = NOI ÷ Annual Debt Service. Lenders want 1.25+ to approve a loan.

Property Value = NOI ÷ Cap Rate. This is how commercial properties are valued — increase NOI to increase value.

becvio calculates NOI automatically using your actual property data — taxes, insurance, maintenance, management, and vacancy — so you always know where each property stands. Try the free cap rate calculator to run the numbers on your next deal.