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NOI calculator
Net operating income is the number every other rental metric is built on. Build it line by line. Income, vacancy, and the operating costs that come out before the mortgage.
This is what the property earns before any loan payment: the figure a lender, an appraiser, and a cap rate all start from.
How NOI is built
NOI sits at the exact midpoint of a property's income statement: everything the building collects, minus everything it costs to run, and nothing else. Cap rate divides it by price. DSCR divides it by debt service. The income approach to value multiplies it by the inverse of a market cap rate. Get NOI wrong and every one of those inherits the error.
What stays out
Four things are excluded by definition: mortgage principal and interest, depreciation, income taxes, and capital improvements. The first three are attributes of the owner rather than the property: different buyers, different loans, different tax situations, same building. That's the point: NOI describes the asset, so any two buyers evaluating it should arrive at the same number.
The reserve argument
Replacement reserves are the honest fudge. Textbook accounting calls a new roof a capital expenditure and keeps it out of NOI, but roofs are not optional and they are not free. Funding a reserve line, commonly 5 to 10 percent of rent, produces an NOI the property can actually sustain, which is why most investors include it even though a seller's pro forma almost never will.
NOI questions
Does NOI include the mortgage payment?
No. NOI deliberately stops above the debt line so it describes the property rather than the buyer's financing. Subtract debt service from NOI and you get cash flow before taxes, which is the number that lands in your account.
Are capital expenditures part of NOI?
Strictly, no. A new roof or HVAC replacement is a capital item, recorded below the NOI line. In practice most investors fund a replacement reserve inside operating expenses anyway, because an NOI that assumes big-ticket items never come due is an NOI the property can't deliver over a full hold.
Why is a seller's NOI always higher than mine?
Because seller pro formas tend to use market rents rather than in-place rents, assume little or no vacancy, omit management on the theory that you'll self-manage, and skip reserves entirely. Rebuild it with your own numbers. The same building can differ by 20 to 30 percent in NOI depending purely on which assumptions get used.
Every calculator
Build NOI from real data, not guesses.
Faro pulls market rent, taxes, and insurance for a specific address and shows every line it used.
Estimates for analysis and educational use only: not financial, investment, tax, or legal advice. Verify every number independently before making a purchase decision.