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The Essential Guide to Calculating Net Operating Income

Fort Oglethorpe Real Estate Investor Calculating NOIAs a Fort Oglethorpe rental property owner, it is important to understand your net operating income (NOI). This figure is a key metric utilized by property owners to determine a property’s performance and is also used by banks and other lenders. This guide will walk the steps necessary to calculate your NOI. We’ll also discuss some of the factors that can affect this number.

What is net operating income (NOI)?

Net operating income (NOI) is a single-family rental property’s annual income after deducting operating expenses. This figure includes both rental income and other forms of income, such as laundry fees or parking fees. It does not include mortgage payments or capital expenses (such as repairs or renovations).

How to Calculate NOI

There are several different ways to calculate NOI, but the most common method is to take a property’s total income and subtract its operating expenses. Here’s an example:

Total Income: $30,000
(subtract) Operating Expenses: $15,000
(equals) NOI: $30,000 – $15,000 = $15,000

There are a few things to keep in mind when calculating your NOI. First, be sure to include all sources of income. This means rental income from tenants and any other fees or charges you collect (such as pet fees or parking fees). Second, be sure only to include operating expenses. This includes such things as property taxes, insurance, and repairs. Mortgage payments and capital expenses (such as renovations) are not included in this number.

Factors that can affect your NOI

Numerous factors can affect your NOI. Some of these are within your control, while others are not.

  • Rental income: The amount of rental income you generate will have a direct impact on your NOI. If you can increase rent prices or lease to higher-paying tenants, your NOI will increase.
  • Operating expenses: Your operating expenses can vary from year to year. If you can keep these costs down, your NOI will increase.
  • Interest rates: If you have a mortgage on your rental property, changes in interest rates can affect your NOI. A rise in interest rates will increase your mortgage payments, which will, in turn, decrease your NOI.
  • Vacancy rates: An increase in vacancy rates will decrease rental income and, therefore, decrease NOI.

As you see, several factors could affect your NOI. It is important to keep an eye on these factors and adjust as needed.

How to use NOI to make smart real estate decisions

Now you know how to calculate NOI, this information can be used to make smart real estate decisions. If you are considering acquiring a rental property, you can use the NOI to help determine whether the property is a good investment. You can also use it to compare different properties and see which one will generate the highest return on investment.

Here are a few examples of how NOI can be used in practice:

You’re considering purchasing a rental property for $200,000. The property has an NOI of $20,000. This means the property will generate a return on investment (ROI) of $20,000/$200,000, or 10%. This is a good ROI, so you decide to purchase the property.

You own a rental property with an NOI of $15,000. You’re considering selling the property and using the proceeds to purchase a different property. However, you find another property that has an NOI of $30,000. This property will generate a higher return on investment, so you decide to sell your current property and purchase the new one.

You’re considering purchasing a rental property for $100,000. The property has an NOI of $15,000. You find another property that’s also for sale for $100,000. However, this property has an NOI of $25,000. The second property will generate a higher return on investment, so you choose to buy it instead.

What’s the bottom line?

NOI is a helpful metric for any Fort Oglethorpe property manager. By realizing how to calculate NOI, you can use it to make smart real estate decisions and ensure that your rental property is performing as well as it should be. However, if calculating values like NOI or ROI isn’t your strong suit, consider having the professionals at Real Property Management Ascension do it for you. Our local office can help you analyze your specific rental market and give accurate data on your investment property’s profitability and competitiveness. Contact us today to learn more.


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