What is net operating income (NOI)?

What goes into net operating income

Net operating income is the money a rental property makes from running it for a year, before any loan payment. Investors use it to compare properties and to work out the cap rate.

Effective gross income is the rent you expect to collect after vacancy, plus any other income. Operating expenses are the costs of running the property. NOI is the first minus the second.

• Rent: the monthly rent times 12.
• Vacancy: the rent lost while the property sits empty.
• Other income: fees for parking, laundry or storage, if the property has any.
• Operating costs: property tax and insurance, plus maintenance and management. Add any HOA fee or landlord-paid utilities.
• Left out: the mortgage, depreciation, income tax and capital work such as a new roof.

A real example from a Homesage.ai report

We pulled one property for sale in Louisville, Kentucky, from Homesage.ai Investment Property Search. It is listed at $214,900 with a verified rent of $1,988 a month.

Verified rent here means the rent advertised on a recent rental listing for this property, checked in our listing data. No lease stands behind it.

The property keeps $13,580 of its $23,856 yearly rent, or 57%. That estimated NOI gives a cap rate of 6.3% on the list price.

Property tax uses the final 2026 rates per $100 in the Jefferson County PVA's schedule. The state, Metro Louisville and schools add up to 0.9224. This property sits inside the Urban Service District, which adds 0.3276 for 1.25% in all.

Vacancy is the Louisville metro rate for Q2 2026 in the Census Bureau's metro vacancy table, with a margin of error of 4.9 points. Insurance is Kentucky's $1,359 average premium for 2022, in NAIC figures from the Insurance Information Institute. Our math carries no HOA fee, so take one off if the property pays it.

That 57% sits just above the 55% on the illustration property further down.

How to calculate NOI on a rental

1. Start with a year of rent. Multiply the monthly rent by 12 and add any other income, such as parking or laundry fees.
2. Take off vacancy. The US Census Bureau put the national rental vacancy rate at 7.3% in Q2 2026. Use your metro's rate where the bureau publishes one.
3. Take off operating costs. Count property tax and insurance, plus maintenance and management. Add any HOA fee. SmartAsset puts management at 8% to 12% of the monthly rent.
4. Leave out the loan and capital work. The mortgage, depreciation and income tax stay out of NOI. So do big replacements such as a roof.
5. Check the result against the price. NOI divided by the price is the cap rate, and our guide to what makes a good cap rate shows how to judge it.

Here is the math on a hypothetical property, priced at $200,000 and renting for $1,600 a month. The figures are round and invented to show the method, with a national rate for each cost.

The property keeps $10,649 of its $19,200 yearly rent, or 55%. Divided by the $200,000 price, that NOI gives a cap rate of 5.3%.

On our illustration property, vacancy and operating costs take 45% of the rent before the mortgage.

Tax uses the 0.9% national effective rate for single-family homes in 2025, from ATTOM's property tax report. Insurance is the $1,569 US average homeowners premium for 2022, from NAIC figures published by the Insurance Information Institute.

That premium covers owner-occupied homes, so get a landlord quote for a rental. American Family Insurance suggests setting aside 1% of the price each year for maintenance.

What moves NOI up or down

Vacancy changes by metro. The Census Bureau's metro vacancy table covers the 75 largest metros. In Q2 2026 their rental vacancy ran from 0.5% in San Jose to 22% in Buffalo, with Tulsa at 5.2% and Houston at 12.9%.

Small metros carry wide margins of error in that table. Check 2 or 3 quarters before you settle on a vacancy rate.

Property tax changes by state. ATTOM put the effective rate at 0.33% of home value in Hawaii and 1.84% in Illinois for 2025. On the illustration property, that is $660 a year in Hawaii and $3,680 in Illinois.

Insurance moves too. The average 2022 homeowners premium was $2,677 in Florida and $893 in Oregon, in the same NAIC figures.

Price is the last input, because NOI divided by the price gives the cap rate. Our guide to the return on a rental property carries NOI through to the loan and the full return.

Common NOI mistakes to avoid

• Skipping vacancy: Leave it out and the illustration's NOI reads $11,911 instead of $10,649. Take off a vacancy rate every time, even on a property that is rented today.
• Using the national vacancy rate everywhere: At Houston's 12.9%, the illustration's NOI falls to $9,682, $967 less than at 7.3%. Use your metro's rate from the Census table.
• Using a national tax rate: At Illinois's 1.84%, tax on the illustration property is $3,680 and NOI drops to $8,769. Look up your county's rate before you run the numbers.
• Treating NOI as money in your pocket: NOI comes before the mortgage, income tax and big replacements such as a roof. Set a separate reserve for those, and check the rent against 3 to 5 similar rentals nearby.

Estimated values. Not investment advice. Data as of 2026-10-28.

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