Does NOI include mortgage payments?

No. NOI specifically excludes mortgage payments. It measures the property's operating performance independent of financing. Mortgage payments are subtracted from NOI to calculate cash flow.

What is a good NOI for rental property?

NOI is best evaluated as a cap rate (NOI / property value). A property with $12,000 NOI worth $150,000 has an 8% cap rate, which is strong. The absolute dollar amount of NOI matters less than how it relates to property value.

What expenses are included in NOI?

NOI includes: property taxes, insurance, maintenance, management fees, vacancy loss, utilities paid by landlord, landscaping, and HOA fees. It excludes mortgage payments, capital expenditures, depreciation, and income taxes.

Net Operating Income (NOI) Explained

NOI is the foundation metric for rental property analysis. Every other metric builds on it.

Updated March 2026|By becvio Research

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What is NOI?

Net Operating Income (NOI) is the total income a rental property generates after subtracting all operating expenses, but before deducting mortgage payments or income taxes. NOI tells you how much money the property itself produces from operations — independent of how it is financed. This makes NOI the foundation for cap rate, DSCR, and property valuation.

How to Calculate NOI

NOI = Gross Rental Income - Vacancy Loss - Operating Expenses. Gross rental income is the total rent if the property were 100% occupied. Vacancy loss is typically estimated at 5-10% of gross rent. Operating expenses include: property taxes, insurance, maintenance and repairs, property management fees (typically 8-10%), utilities paid by landlord, landscaping, and any HOA fees. NOI specifically excludes: mortgage payments, capital expenditures, depreciation, and income taxes.

Why NOI Matters

NOI is used in almost every real estate investment calculation. Cap rate equals NOI divided by property value. DSCR equals NOI divided by annual debt service. Property valuations in commercial real estate are derived directly from NOI using the income approach. A strong, growing NOI makes a property more valuable and more financeable. A declining NOI is a warning signal.

NOI for Different Property Types

For single family rentals, NOI is relatively simple to calculate. For multifamily and commercial properties, NOI becomes more complex with multiple income streams (rent, laundry, parking, storage) and more detailed expense categories. Regardless of property type, the concept is the same: total income minus operating costs equals NOI.

Common NOI Mistakes

The biggest mistake new investors make is confusing cash flow with NOI. Cash flow subtracts mortgage payments from NOI. Another common error is underestimating operating expenses. A realistic expense ratio for residential rental property is 35-50% of gross rent. If someone shows you a deal with only 20% expense ratio, the numbers are likely too optimistic.