It essentially tells you the rate of return of a property if you bought it for cash. The Capitalization Rate (or “Cap Rate” for short) can be used as a simple calculation to compare similar properties. Remember, this doesn’t account for your debt payments, but if you own the property free and clear, this is the amount that would go into your pocket. That leaves you with an NOI of $805 ($1,380 – $575) per month, or $9,660 per year. So your operating income is $1,380 ($1,500 – vacancy loss of $120), and your operating expenses are $695. The property also has the following expenses: Let’s say you have a property that rents for $1,500 per month and we assume an 8% vacancy loss ($120). NOI is what you have left at the end of the day to pay your lender – and therefore your lender finds this number extremely interesting. Basically all expenses except for the principal and interest on your mortgage payment and capital expenses.
![rental real estate noi calculation rental real estate noi calculation](https://www-vacasa.imgix.net/rental_studio_calculator_screenshot.png)
NOI take into account your gross income, vacancy loss, and operating expenses such as maintenance, repairs, taxes, insurance, and property management.
![rental real estate noi calculation rental real estate noi calculation](https://www.mashvisor.com/blog/wp-content/uploads/2019/10/How-to-Determine-a-Good-Rental-Property-12-Steps-585x390.jpg)
Net operating income is one of the most important numbers you should know, because it’s also used in so many other calculations (such as cap rate, debt coverage ration, etc.) Net Operating Income (NOI) is the income left after accounting for your operating expenses and BEFORE debt service. NOI = Operating Income – Operating Expenses
![rental real estate noi calculation rental real estate noi calculation](https://i.pinimg.com/474x/5b/05/09/5b050971757a76a497b13324abd45b13--property-tax-menu.jpg)