Real Estate Investing Glossary

Net Operating Income (NOI)

Last reviewed July 15, 2026

Net operating income (NOI) is a property’s rental and other income minus operating expenses, before mortgage payments, capex, and income taxes.

What is net operating income?

Net operating income (NOI) is the core profitability measure for income real estate. It starts with all revenue a property generates, rent, pet fees, laundry, parking, then subtracts the costs of operating it: property taxes, insurance, property management, repairs and maintenance, utilities the owner pays, and an allowance for vacancy.

NOI intentionally excludes three things: debt service (mortgage payments), capital expenditures (big-ticket replacements like roofs and HVAC systems), and income taxes. Excluding financing makes NOI a property-level number, so two investors with very different loans can still agree on what the asset itself earns. NOI is the numerator in the cap rate formula and the starting point for a lender’s DSCR calculation.

Because sellers often quote "pro forma" NOI with optimistic rents and understated expenses, careful buyers rebuild NOI from actual rent rolls, tax bills, insurance quotes, and realistic vacancy and maintenance assumptions before trusting any advertised cap rate.

Formula

NOI = gross operating income − operating expenses (excluding mortgage payments, capex, and income taxes)

Worked example

A duplex collects $2,600 per month ($31,200 per year) with $200 per year of pet fee income. Operating expenses are $3,900 property taxes, $1,700 insurance, $2,500 management, $2,400 maintenance, and a $1,560 vacancy allowance (5%). NOI = $31,400 − $12,060 = $19,340.

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Frequently asked questions

Is NOI the same as cash flow?: No. NOI is income minus operating expenses but before the mortgage. Cash flow is what is left after you also pay debt service and set aside reserves for capital expenditures. A property can have strong NOI and negative cash flow if it carries a large loan, which is why investors look at both numbers.
Are property management fees included in NOI?: Yes. Property management is a normal operating expense and belongs in the NOI calculation even if you currently self-manage. Underwriting a management fee (typically 8% to 10% of collected rent for single-family homes) keeps the analysis honest and preserves the property’s value to a future buyer who will not self-manage.

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What is net operating income?

Frequently asked questions

Is NOI the same as cash flow?

No. NOI is income minus operating expenses but before the mortgage. Cash flow is what is left after you also pay debt service and set aside reserves for capital expenditures. A property can have strong NOI and negative cash flow if it carries a large loan, which is why investors look at both numbers.

Are property management fees included in NOI?

Yes. Property management is a normal operating expense and belongs in the NOI calculation even if you currently self-manage. Underwriting a management fee (typically 8% to 10% of collected rent for single-family homes) keeps the analysis honest and preserves the property’s value to a future buyer who will not self-manage.