NOI is a property’s income after operating expenses but before mortgage and taxes — the number every other real-estate metric builds on. Effective gross income minus operating expenses.
The example
$60k income, $12k expenses.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Effective income | 60000 |
| 3 | Operating expenses | 12000 → $48,000 |
The formula
The formula:
How it works
How it works:
- Start with effective gross income — potential rent minus vacancy and credit loss, plus other income.
- Subtract operating expenses: taxes, insurance, management, maintenance, utilities, reserves.
- Do not subtract mortgage payments, depreciation, or capital expenditures — those are below NOI.
- NOI feeds cap rate, DSCR, and valuation — get it right and the rest follows.
Above vs below the NOI line: operating expenses (taxes, insurance, repairs, management) sit above the line and reduce NOI. Debt service, income tax, depreciation and capital improvements sit below it. Mixing them up is the most common NOI mistake — keep the mortgage out.
Try it: interactive demo
Effective income and operating expenses.
Variations
Effective gross income
From potential rent:
Expense ratio
Opex as % of income:
Cap rate from NOI
Next step:
Pitfalls & errors
No mortgage. Debt service is below the NOI line — never subtract it here.
Include reserves. Budget for vacancy and capital reserves so NOI is realistic.
Annualize. Use yearly figures, or be consistent if working monthly.
Practice workbook
Frequently asked questions
How do I calculate NOI in Excel?
What's included in operating expenses?
Does NOI include the mortgage payment?
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