Investing
NOI Calculator for Rental Property: Formula and Worked Math
Free NOI calculator for rental property: the net operating income formula, which expenses count, a worked $400,000 example, and the DSCR lenders compute from it.
If you searched for an NOI calculator, the one below runs the whole chain: effective gross income, net operating income, cap rate, and DSCR, from six inputs. The defaults are a real-shaped rental (a $400,000 house collecting $42,000 a year), so you can see how the numbers connect before you swap in your own. After the calculator, this post walks the formula line by line: what counts as an operating expense, what stays out, and the two places I most often see landlords' NOI go wrong when their books feed the number.
The NOI calculator
Runs entirely in your browser; nothing you type is sent anywhere. Want the levered metrics too (cash-on-cash, ROE, principal paydown)? The rental ROI calculator takes the same property through all of them.
What net operating income measures
Net operating income is what a rental property earns from operations in a year, before any financing and before income taxes. NOI is the meaning behind most of the numbers real estate people throw around: cap rate is NOI divided by value, DSCR is NOI divided by the mortgage payment, and a broker's "pro forma" is mostly an argument about what NOI should be.
The formula has two steps:
- Effective gross income (EGI) = gross potential rent, minus vacancy and credit loss, plus other income (laundry, parking, pet rent, application fees).
- NOI = EGI minus operating expenses.
The reason NOI ignores the mortgage is that the mortgage describes the buyer, not the building. A fourplex has one NOI whether the owner paid cash or borrowed 80%. That is exactly what makes it useful for comparing properties, and exactly why it is the wrong number for judging your personal return. For that you want cash-on-cash and return on equity, which I covered with benchmarks in what is a good ROI on a rental property.
What counts as an operating expense, and what stays out
This is where most NOI numbers go wrong, so here is the line-by-line. If you file a US tax return, you already itemize operating expenses every year on Schedule E; the mapping below shows which of its lines belong in NOI.
| Expense | Schedule E line | In NOI? |
|---|---|---|
| Advertising | 5 | Yes |
| Auto and travel | 6 | Yes |
| Cleaning and maintenance | 7 | Yes |
| Commissions | 8 | Yes |
| Insurance | 9 | Yes |
| Legal and professional fees | 10 | Yes |
| Management fees | 11 | Yes |
| Mortgage interest | 12 | No (financing) |
| Other interest | 13 | No (financing) |
| Repairs | 14 | Yes |
| Supplies | 15 | Yes |
| Property taxes | 16 | Yes |
| Utilities | 17 | Yes |
| Depreciation | 18 | No (non-cash tax deduction) |
| Capital expenditures | n/a (depreciated) | No (below the line) |
So a Schedule E is almost an NOI statement, with three add-backs: mortgage interest, other interest, and depreciation come out. Income taxes never enter either number. The IRS's own rental income guide is the reference for what belongs on each line.
Two traps in that table are worth naming, because both come from how the books are kept rather than from the formula:
The capex trap. A capital improvement (roof, HVAC, a full turnover renovation) is not an operating expense; it gets depreciated over years per IRS Publication 527. Take the $12,599 unit turnover I broke down line by line in Schedule E line 14 repairs: part of it is repair, part is improvement, and the split is worth real money at appraisal time. Expense the whole turnover as repairs and NOI drops by $12,599, which at a 7.25% cap rate understates the property's implied value by roughly $174,000. One bad journal entry, six figures of paper value.
The commingling trap. Personal spending booked to the property inflates operating expenses and quietly deflates NOI. When our diagnostic bot first ran on a seeded two-property book, Schedule E readiness came back 71%: uncategorized lines, personal charges on the rental card, a repair hiding in an "Other" account. After cleanup it read 92%, and the NOI that fell out was a different number than the first pass. If the inputs are wrong, no calculator saves you.
A worked example: $400,000 rental, $29,000 NOI
Here is the calculator's default property in full, a single-family rental worth $400,000 renting at $3,600 a month:
| Line | Annual |
|---|---|
| Gross potential rent (12 × $3,600) | $43,200 |
| Vacancy and credit loss (actual: a 10-day gap between tenants) | −$1,200 |
| Effective gross income | $42,000 |
| Property taxes | −$4,800 |
| Insurance | −$1,700 |
| Repairs and maintenance | −$2,400 |
| Management (8% of collected rent) | −$3,360 |
| Water, sewer, trash | −$540 |
| Supplies and misc | −$200 |
| Total operating expenses | −$13,000 |
| Net operating income | $29,000 |
Operating expenses run 31% of collected rent here, which is on the lean side because it is a newer single-family with tenant-paid utilities. The classic "50% rule" (expenses eat half the rent) bakes in vacancy, a capital reserve, and older multifamily; treat it as a screening bound, not a target. If your own expense ratio lands under 25%, the more likely explanation is a missing expense than a great property.
NOI vs cash flow vs taxable income
The same property produces three very different bottom lines, and mixing them up is the most common metrics mistake I see:
| Measure | Amount | What was subtracted |
|---|---|---|
| Net operating income | $29,000 | operating expenses only |
| Cash flow before taxes | $9,000 | plus $20,000 principal and interest |
| Taxable income (Schedule E) | ~$2,300 | interest (~$16,150) and depreciation (~$10,545); principal is not deductible |
NOI says the property is a solid 7.25% cap. Cash flow says your bank balance grows $9,000 a year. The tax return says you made about $2,300, because mortgage interest is deductible and depreciation (the $290,000 building over 27.5 years) shelters most of the rest. All three are correct answers to different questions, and the gap between the first and last rows is most of what makes rental real estate tax-efficient; the mechanics of that gap are the subject of how rental income is taxed.
DSCR: what your lender does with your NOI
Every DSCR and commercial lender runs one division on your NOI before anything else: NOI divided by annual debt service. The example property carries $29,000 of NOI against $20,000 of principal and interest, a 1.45 DSCR. The property earns 45% more than the loan costs.
Most lenders want at least 1.20 to 1.25. Flip that around and NOI tells you your borrowing ceiling: at a 1.25 minimum, $29,000 of NOI supports up to $23,200 of annual debt service, about $1,933 a month. This is why a clean, defensible NOI is worth preparing before a refinance conversation, and why the capex trap above cuts both ways: repairs stuffed with capital work shrink the NOI your lender underwrites, and your loan amount with it.
Pro forma NOI vs actual NOI
Listings quote pro forma NOI: projected rent at market, 5% vacancy, and expense estimates. Three assumptions deserve a hard look every time:
- Market rent vs actual rent. A pro forma at $3,600 a month means nothing if the unit has collected $3,250 from the same tenant for three years. Ask for the rent roll and the last twelve months of actual collections.
- Vacancy by assumption. 5% is the polite default. One month of turnover on a single-family is 8.3% of the year. Actual history beats the default.
- Repairs and management. Pro formas love $600 repair years and self-management at 0%. Twelve months of real bank activity is the correction: our rental P&L template is a free way to lay out actuals in exactly the shape the NOI formula wants.
The pattern in all three: pro forma NOI is the asking price of the income. Actual NOI, rebuilt from bank transactions, is the appraisal.
The takeaway
NOI is the one number that describes the property itself: income minus operating expenses, with financing, depreciation, and capital work kept out. Compute it from actuals, keep capex out of repairs, and keep personal spending out of the property's books, because cap rate, DSCR, and your refinance ceiling all inherit whatever errors the bookkeeping feeds them. The calculator above handles the arithmetic; the books are the part that takes discipline. That second part is the reason Oberlin24 exists: it keeps double-entry books from your bank feed, splits mortgage payments into interest, principal, and escrow on its own, and produces a P&L where the NOI line is defensible. Run your last twelve months through it and see if the number matches what you have been telling yourself, or open the live demo first, a full set of rental books you can click through with no signup.
Frequently asked questions
Does NOI include mortgage payments?
No. Net operating income measures the property before any financing, so principal and interest stay out. That is what makes NOI comparable across buyers: a property has one NOI whether it is bought in cash or with 80% leverage. Subtract annual debt service from NOI and you get cash flow before taxes, a different number that depends on your loan.
Does NOI include depreciation or capital expenditures?
Neither. Depreciation is a tax deduction, not an operating cost, so it never enters NOI. Capital expenditures (a roof, an HVAC replacement, a full renovation) sit below the NOI line too. Pro forma analyses often include a capital reserve of $200 to $300 per unit per year as an operating line, which is fine as long as the listing says so; mixing actual capex into repairs makes NOI swing wildly year to year.
What is a good NOI for a rental property?
NOI only means something relative to price, which is what cap rate measures: NOI divided by property value. Most residential rentals run between 5% and 8%. A $400,000 house producing $29,000 of NOI sits at 7.25%, solidly inside that band. The same $29,000 on an $800,000 house is 3.6%, which a Treasury bill beats without tenants.
How do I calculate NOI from my Schedule E?
Start from the property's Schedule E net income, then add back the three lines that are not operating expenses: line 12 mortgage interest, line 13 other interest, and line 18 depreciation. Check line 14 while you are there: if a capital improvement was expensed as a repair, your NOI is understated by that amount.
What is DSCR and what number do lenders want?
Debt service coverage ratio is NOI divided by annual debt service (principal plus interest). Most DSCR and commercial lenders want at least 1.20 to 1.25, meaning the property earns 20% to 25% more than the mortgage costs. The example property in this post runs $29,000 of NOI against $20,000 of debt service, a 1.45 DSCR, with room to borrow more.
What is the difference between NOI and cash flow?
NOI is income minus operating expenses, before the mortgage. Cash flow is what is left after debt service. On the worked example here, the same property produces $29,000 of NOI but $9,000 of cash flow, because $20,000 a year goes to principal and interest. NOI describes the property; cash flow describes your deal.
What is pro forma NOI?
A projection of what the property should earn under assumed rents, vacancy, and expenses, usually prepared by the seller or broker. Pro formas routinely use market rent instead of actual rent, 5% vacancy instead of the real history, and thin repair numbers. Treat pro forma NOI as the asking price of the income, then rebuild it from twelve months of actual bank activity before you trust it.
Is NOI the same as EBITDA?
They are close cousins. EBITDA is a company's earnings before interest, taxes, depreciation, and amortization; NOI applies the same idea to a single property: income before financing, income taxes, depreciation, and capital items. If you can read one, you can read the other.