1. What is Net Operating Income (NOI)?

Net Operating Income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments. It equals all revenue from the property minus all reasonably necessary operating expenses.

2. How Does the Calculator Work?

The calculator uses the NOI formula:

Where:

• Potential Income — Maximum possible rental income if 100% occupied
• Occupancy Rate — Current occupancy percentage (expressed as decimal)
• Operating Expenses — All costs associated with operating the property

Explanation: The formula accounts for actual income (potential income adjusted for vacancy) minus all operating costs.

3. Importance of NOI in Real Estate

Details: NOI is crucial for determining property value, securing financing, and comparing investment properties. It excludes capital expenditures, debt service, and income taxes.

4. Using the Calculator

Tips: Enter potential income in USD, occupancy rate as decimal (0-1), and expenses in USD. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What expenses are included in NOI?
A: Includes property taxes, insurance, maintenance, utilities, property management fees, but excludes mortgage payments and capital expenditures.

Q2: How is NOI different from cash flow?
A: NOI doesn't account for financing costs (mortgage payments), while cash flow is NOI minus debt service and capital expenditures.

Q3: What is a good NOI for a rental property?
A: Depends on location and property type, but generally 6-12% of property value is considered good.

Q4: Can NOI be negative?
A: Yes, if operating expenses exceed income. This indicates the property is losing money from operations.

Q5: How is NOI used in cap rate calculations?
A: Cap Rate = NOI / Property Value. It helps investors compare properties and assess potential returns.