NOI Calculator (Net Operating Income)
Calculate Net Operating Income for a rental property and derive cap rate and expense ratio.
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How to use this calculator
- 1
Enter your gross annual rental income and any other income from the property.
- 2
Set the vacancy and credit loss percentage based on local market conditions.
- 3
Enter total annual operating expenses (taxes, insurance, maintenance, management — NOT mortgage).
- 4
Add the property value to calculate cap rate alongside NOI.
Frequently asked questions
What formula does this tool use for NOI?
This tool uses potential gross income = rental income + other income; vacancy loss = potential gross income × vacancy %; effective gross income (EGI) = potential gross income − vacancy loss; NOI = EGI − operating expenses. Vacancy and credit loss therefore applies to other income as well as to rent.
How is the cap rate calculated here?
Cap rate = NOI ÷ property value × 100, using whatever value you enter, whether that is a purchase price, an appraisal or your own guess. The result is a percentage of that single value; it moves in the opposite direction when the value changes and NOI stays put.
What is the expense ratio?
It is operating expenses ÷ effective gross income × 100, so it is measured against income after vacancy, not against gross rent. With the form defaults, $20,000 of expenses over $57,040 of EGI gives 35.1%.
What counts as an operating expense, and what is excluded?
Whatever you put in the single expense field is used as given. By definition NOI is before loan payments, so mortgage principal and interest should not be included, and neither should depreciation or income tax. Capital improvements are also usually kept out, but the calculator cannot tell what you included.
Can NOI and the cap rate be negative?
Yes. If operating expenses exceed effective gross income, NOI is negative and the cap rate shows a negative percentage. The tool does not floor either figure at zero.
What does a blank or zero field do?
Clearing a box counts as 0, and a 0 is used as typed rather than replaced by the form default. That matters for vacancy: entering 0 really does mean no vacancy loss, so the default case moves from NOI $37,040 to $42,000. Vacancy is capped at 100%, and negative numbers are treated as zero. The one exception is property value: a cap rate cannot be worked out on a value of 0, so the cap rate line reads N/A while NOI and the other lines still show. The expense ratio reads N/A when there is no income left after vacancy.
Does the tool convert NOI into a property value?
No, it works from value to cap rate only. Rearranging the same relationship, NOI ÷ cap rate, gives a value for any cap rate you choose, but the tool does not supply a market cap rate and this page does not claim any.
Why is financing missing?
NOI is meant to describe the property before it is financed, so debt service is outside the formula. For cash flow after a mortgage, use a cash-flow tool and subtract the annual loan payments from the NOI figure.
Net operating income: from rent roll to cap rate
The four steps in the calculation
NOI starts with potential gross income, which is gross rent plus other income such as parking or laundry. A vacancy and credit-loss percentage is taken off that total to reach effective gross income, and operating expenses are then deducted. With the defaults ($60,000 rent, $2,000 other income, 8% vacancy, $20,000 of expenses), vacancy loss is $4,960, effective gross income is $57,040 and NOI is $37,040. Against a $500,000 value, the cap rate is 7.41% and the expense ratio is 35.1%.
Worked example: what vacancy does
Setting the vacancy percentage to zero with every other default unchanged lifts NOI from $37,040 to $42,000 and the cap rate from 7.41% to 8.40%. The expense ratio falls from 35.1% to 32.3% because the same $20,000 of expenses is now measured against a larger effective gross income of $62,000. Seemingly small vacancy assumptions therefore reach every output, which is why the field deserves a considered entry rather than a zero.
Worked example: a building with heavier expenses
Consider $96,000 of rent, no other income, 5% vacancy, $38,000 of operating expenses and a $900,000 value. Vacancy loss is $4,800, effective gross income $91,200, NOI $53,200, cap rate 5.91% and expense ratio 41.7%. If instead the default property carried $50,000 of expenses, NOI would be just $7,040, the cap rate 1.41% and the expense ratio 87.7%, showing how fast the margin disappears when expenses approach income.
| Scenario | EGI | NOI | Cap rate | Expense ratio |
|---|---|---|---|---|
| Defaults: $60,000 rent, 8% vacancy, $20,000 expenses, $500,000 value | $57,040 | $37,040 | 7.41% | 35.1% |
| Defaults with 0% vacancy | $62,000 | $42,000 | 8.40% | 32.3% |
| $96,000 rent, 5% vacancy, $38,000 expenses, $900,000 value | $91,200 | $53,200 | 5.91% | 41.7% |
| Defaults with $50,000 of expenses | $57,040 | $7,040 | 1.41% | 87.7% |
NOI is not cash flow
Because NOI stops before debt service, the same property gives the same NOI whether it was bought for cash or with a large loan. Cash flow subtracts the loan payments afterwards, so a property with a healthy NOI can still produce a negative cash flow with heavy borrowing. This tool stops at NOI and the cap rate; it does not model loan terms.
Limits of the cap rate shown
The cap rate is one year of NOI over a single value, so it says nothing about future rent changes, repairs on the horizon or what the property would sell for. It also inherits any optimism in the vacancy and expense entries. Compare cap rates only when the NOI of each property is built on the same basis, with the same treatment of reserves and management.
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Results are estimates for informational purposes only and do not constitute professional financial, medical, legal, or technical advice. Read full disclaimer →