Free Net Operating Income (NOI) Calculator

The following are some general guidelines for calculating Operating Income (Net):

How to Interpret the Results of Your NOI Calculator

• On an income-producing property, the NOI should be positive.
• The NOI is usually estimated once a year.
• Your monthly mortgage payments are not included in your NOI.
• NOI is often used to calculate cap rate, return on investment, and cash flow when evaluating a property.

How Does the Calculator for Operating Income (Net) Work?

The Operating Income (Net) calculator works by computing data inputs such as gross rental revenue, other income, vacancy losses, and operational expenditures to estimate a property’s NOI. The calculator will then utilize those values to calculate the net operating income of the property.

Although using the calculator is simpler than making the numbers yourself, we will supply you with the Operating Income (Net) formula in case you’re wondering. Keep in mind that NOI is usually computed on an annual basis, so your monthly rentals and costs may need to be multiplied by 12.

Let’s look at how to compute net operational income on an investment property using an example. Remember: gross rental revenue + other income – vacancy loss – operational expenditures equals NOI. Assume that the gross rental revenue is $120,000 per year, that additional income is $12,000 per year, that vacancy loss is $6,000 per year, and that running expenditures are $40,000 per year.

Let’s start by calculating the overall annual revenue.

$132,000 is the sum of $120,000 and $12,000.

The vacancy loss is then subtracted.

$126,000 = $132,000 – $6,000

After that, we deduct the operational expenditures.

NOI = $86,000 ($126,000 – $40,000)

This is for the first year, but assuming nothing changes, it will quadruple your available cash in the second year. The Operating Income (Net) (NOI) determines whether or not a property has the potential to be profitable. It’s important to note that this does not include your monthly mortgage payment. You may use your NOI to compute your cap rate, which is the rate of return on an income-producing property; cap rates of 4% to 10% and above are normally regarded desirable.

It’s crucial to understand your NOI so you can compare it to the NOIs of other properties, seek to grow it to optimize your cash flow, and utilize it to calculate the cap rate and ROI of the property. A property with a larger NOI is usually the best option, but you should also analyze the property’s cash flow once your mortgage payment is taken into account.

Inputs to the Operating Income (Net) Calculator

You will be requested to enter some parameters when using the Operating Income (Net) calculation. Your gross rental revenue, additional income, vacancy loss, and running expenditures are all factors to consider. Each input for the Operating Income (Net) calculation will be explained below.

Investment Property Gross Rental Income

The gross rental revenue is the first parameter for the Operating Income (Net) computation. This is the total rent due under the conditions of each individual residential or business lease, provided the property is fully leased. If the property isn’t completely occupied, the amount is referred to as prospective rental income (PRI), and it’s calculated based on a rental market study of similar properties in the area’s leases and terms.

Other Investment Property Income

Other revenue is the following input, which relates to any extra money generated by the property (besides rental income). Parking, vending, and laundry revenue, as well as facility rents and billboard or sign revenue, may all be included. Basically, all revenue sources from the income-producing property should be included.

An Investment Property’s Vacancy Loss

The loss of revenue caused by renters departing the property and/or tenants failing on their lease payments is referred to as vacancy loss. If you don’t know how much vacancy loss you’ll have, you may estimate it using vacancy rates for similar buildings.

Calculate vacancy losses by multiplying the amount the unit might have leased for by the number of months it was empty throughout the year. If other identical apartments rent for $3,000 per month and the vacant unit remains unoccupied for two months, increase $3,000 by two to get $6,000, which is the property’s annual vacancy loss.

Investment Property Operating Expenses

All of the costs required to effectively manage and maintain your income-producing property are included in your operational expenses. Your total operating expenditures, which you may figure by summing together all of your distinct operating expenses, are used in the Operating Income (Net) calculation (such as property taxes and rental property insurance).

The following items are often included in a rental property’s operating costs:

• Property taxes are usually assessed once a year, and if you have a mortgage, your lender may escrow them so that you may pay them monthly with your mortgage payment. Your property taxes may be found at your local property tax office, on Zillow, or on your annual tax assessment statement.
• Rental property insurance, often known as landlord insurance, is distinct from homeowners insurance in that it covers loss of income, liability, and dangers. The average annual cost of a rental property insurance coverage is $1,473 to $1,596.
• Fees charged by a property manager or management firm for the management of your property. The property manager is responsible for collecting rent, communicating with tenants, and overseeing maintenance and repairs. Management costs vary depending on the property, its size, and the scope of work, but they normally range from 8% to 12% for an investment property and 25% or more for a vacation rental property.
• Lawn maintenance, snow removal, pest control, cleaning, and other services required to maintain an investment property in good working order. Repairs such as pointing brickwork, rebuilding a leaking roof, or correcting defective wiring are also included. Annually, maintenance and repairs generally amount to 1% of the property’s worth.
• Miscellaneous Expenses: Anything you spend on the property that doesn’t fall under one of the other operational expenditure categories. Accounting, marketing, advertising, and legal costs are examples of this. You may leave this box blank in the Operating Income (Net) calculation if you’re not sure what these expenditures are.

Outputs of the Net Operating Calculator

The free Operating Income (Net) calculator calculates the property’s Operating Income (Net) based on all of your inputs. The calculator’s Operating Income (Net) formula is NOI = Gross rental revenue + Other income – Vacancy loss – Operating expenditures once more.

Operating Income (Net)

After you enter your inputs, such as gross rental income and operating expenses, the calculator will tell you your Operating Income (Net). You can then use this NOI to figure out your cap rate and cash flow, which are two additional ways to analyze an income-producing property.

The NOI, on the other hand, might be useful when it comes to a property you already own. It can assist you in determining if your rentals are too low, your vacancy losses are too large, or your running costs are too high.

When to Use an Operating Income (Net) Calculator for Real Estate

Operating Income (Net) is primarily used by buying and holding real estate investors to analyze an income-producing property and decide if it’s a good investment and whether or not they want to purchase it. By looking at the NOI of a few different properties, you can compare them to see which has the highest NOI in comparison to its sales price.

The Operating Income (Net) calculator will easily calculate a property’s NOI based on inputs such as gross rental income and operating expenses, thus making it a valuable tool for both investors deciding if a property is worth the investment and investors who want to analyze their current property to try to increase their NOI or get the property ready to sell.

“I mostly use NOI to track the financial performance of my units over time.” If I see that NOI is declining, I may take remedial action by digging further into the data. Is it lower as a result of lengthier vacancies, more maintenance expenses, higher property taxes, and so on? Knowing the factors that influence NOI and how to increase it would make my rentals more lucrative and, eventually, more attractive to another investor if I ever decide to sell.” — Domenick Tiziano, Accidental Rental blogger

An Operating Income (Net) calculator can be used by the following types of investors:

• Investors in residential real estate: To analyze the NOI of several properties and choose whether one is worth acquiring.
• Investors in commercial real estate: To evaluate commercial income-producing properties and determine which are suitable investments based on NOI, cap rate, and sales price.

An Operating Income (Net) calculator can be used for the following types of properties:

• Current Investment Property Owner: Analyze current NOI to do a financial audit on their property and determine ways to boost NOI to increase cash flow.
• Prior to Selling an Investment Property: You may calculate your NOI and look for methods to increase it (e.g., raising rents, lowering vacancy rates, etc.) so you can sell it for a better price.
• Apartment Buildings: Based on the NOI of an apartment building, you can estimate your cash flow; since there aren’t many suitable comparables of apartment buildings owing to the limited market sector, NOI can assist you assess available inventory.
• NOI can also assist you in comparing multifamily buildings and determining whether or not it makes sense to invest in one.

An Operating Income (Net) calculator generally isn’t used by fix and flippers because they don’t intend to rent out their property. Instead, they would analyze an investment property by looking at the comparable property prices, the loan to value (LTV) and the after repair value (ARV).

Alternatives to Using Net Operating Income (NOI) for Real Estate Investments

Knowing the Operating Income (Net) of an income-producing investment property helps you analyze the property and make a purchase decision. However, there are also alternative ways of deciding if an investment property is right for you.

There are other methods to examine an investment property if it isn’t completely leased, you don’t know what the rentals should be, or the property has to be rehabbed. To acquire a complete financial picture of the property, we propose employing two to three approaches.

The following are some alternatives to employing NOI for real estate investments:

• Investors utilize the cap rate, which incorporates the NOI, to assist evaluate the prospective rate of return on an investment property. The cap rate is calculated by dividing the net operating income by the current property value.
• The 1% Rule states that gross monthly rental revenue should equal at least 1% of the purchase price. Depending on the property type and region, some investors adopt the 2% guideline. It’s normally cash flow positive if the property’s gross monthly revenue is 1% or more of the acquisition price.
• The gross rental yield is calculated by dividing the yearly rent received by the total property cost and multiplying by 100. The purchase price, closing charges, and any remodeling expenditures are all included in the overall property cost.
• Check to see whether the estimated monthly rent will cover your bills, such as your mortgage payment, taxes, insurance, utilities, and HOA fees, to determine the property’s prospective cash flow.
• Look at what similar houses have sold and leased for in the last three to six months. Comparables should be of the same sort, have similar facilities, and be of comparable size. A comparative market study might help you find them.
• A respectable return on investment (ROI) for a real estate venture is typically 10% or higher. Calculate your yearly return on an investment property and divide it by your total cash investment to get your ROI. Subtract your costs from your total rental revenue to get your yearly return.

Conclusion

Operating Income (Net) can be calculated in different ways, but the generally accepted method is gross rental income plus any other income minus vacancies minus operating expenses equals Operating Income (Net). Real estate investors use NOI to help analyze income-producing properties. Our free NOI calculator helps figure out the calculations for you.

Frequently Asked Questions

How do you calculate net operating income?

Net operating income is the amount of cash coming into a company after it has paid all its expenses and used any profits to increase shareholder value. Operating income is one of the main ways companies can show their performance, so in order to calculate net operating income, you need two pieces of data- gross revenues minus total cost/expenses equals net profit.

How do I calculate NOI in Excel?

To calculate the net operating income for a company, you will subtract expenses from revenue. Subtracting your total expenses from revenues gives you your Net Operating Income, or NOI.