Net Operating Income (NOI): What It Is, the Formula and How to Calculate It

Every renewal you sign, every turn you rush and every invoice you code ends up in one number. Owners call it NOI.

The short version: NOI is what the property earns from operations, and the site team controls more of it than anyone else.

Quick Answer Net operating income (NOI) is a property's income from operations minus its operating expenses. It's measured before debt service, capital expenditures, depreciation and income taxes. The formula is NOI = Total Income − Operating Expenses. A property with $2,000,000 of Total Income and $1,250,000of operating expenses has an NOI of $750,000.

What Is Net Operating Income (NOI)?

Net operating income is the money a property makes from running the property. It's usually stated as an annual figure for a single asset.

Nareit's definition is the standard one: NOI is "the income remaining after deducting all necessary operating expenses from a property's total revenue. It excludes mortgage payments, depreciation, and capital expenditures."

That's why owners, lenders and appraisers all start with it. NOI shows how well the property operates, regardless of who owns it or how it's financed. Two identical buildings with different loans have different cash flow. They should have roughly the same NOI.

For the site team, NOI is the scorecard. Occupancy, renewals, collections, turn costs and expense coding all land on it.

The Net Operating Income Formula

The formula fits on one line:

NOI = Total Income − Operating Expenses

Total Income is what the property actually expects to collect, not what it would collect in a perfect world. In multifamily, you get there in layers. Each layer is a separate assumption in the budget:

Market Rent
− Loss to lease
= Gross Potential Rent
− Vacancy loss
− Concessions
− Bad debt
− Non-revenue units (models, employee units)
= Net Rental Income
+ Other income (fees, parking, pet rent, utility reimbursements)
= Total Income
− Operating Expenses
= Net Operating Income (NOI)

Market Rent is the rent you'd collect if every unit were leased at market rent for the full year. Everything between Market Rent and Total Income is the gap between that ideal and reality.

What Counts as an Operating Expense

Operating expenses are the recurring costs of running the property:

• Payroll and benefits for site staff
• Repairs and maintenance (R&M)
• Make-ready and turnover costs
• Contract services (landscaping, pest control, trash)
• Utilities paid by the property
• Marketing and advertising
• Administrative costs (software, office supplies, legal and professional fees)
• The management fee
• Property insurance
• Property taxes

Property taxes are an operating expense. Income taxes aren't. That distinction trips people up more than any other line.

What NOI Leaves Out

Five things sit below the NOI line:

• Debt service. Mortgage principal and interest. As J.P. Morgan's multifamily lending guide puts it, "Loan payments aren't included in NOI because they aren't related to the property's operations."
• Capital expenditures. Roofs, HVAC replacements, unit renovations, parking lot resurfacing. These are long-lived improvements, not the cost of running the property this year.
• Depreciation and amortization. Accounting entries, not cash spent on operations.
• Income taxes. These depend on the owner's own tax situation, not on the property.
• Owner-level costs. Many owners keep asset management fees and partnership costs out of property NOI, because they belong to the ownership entity rather than the property. Practices vary, so match your owner's reporting format.

How to Calculate NOI: A Multifamily Example

Here's an illustrative 120-unit property with an average market rent of $1,500 a month. The numbers are round on purpose. Walk through them once and you can do it for any property.

1. Start with Market Rent. 120 units × $1,500 × 12 months = $2,160,000.
2. Subtract the revenue deductions. Loss to lease (2% of GPR), vacancy (5%), concessions (1%), bad debt (1%) and one non-revenue model unit come to $212,400.
3. Add other income. $75 per unit per month in fees, parking, pet rent and utility reimbursements = $108,000.
4. Subtract operating expenses. $1,031,668 across ten lines.
5. What's left is NOI. $1,023,932.

Illustrative example. Not a benchmark for any market.

Two quick checks make the number easier to talk about. NOI per unit is $1,023,932 ÷ 120 = about $8,533. The operating expense ratio is $1,031,668 ÷ $2,055,600 = 50.2% of Total Income, at the low end of the 50–55% rule of thumb from our multifamily fundamentals post.

Notice how much sits between Market Rent and Total Income. If you budget to physical occupancy and skip concessions, bad debt and the model unit, this property's Total Income is overstated by $61,200. That gap is the whole point of the physical vs economic occupancy distinction. NOI is overstated by the same amount, less a small change in the management fee.

Monthly, Annual, T12 and T3

NOI is usually quoted as an annual number. Your monthly operating statement shows monthly NOI, and the year is the sum of those months.

Owners and lenders also look at trailing periods:

• T12 is the last 12 months of actual NOI. It's the full-year picture.
• T3 is the last three months, often annualized by multiplying by four.

They can tell different stories. If the example property's last three months produced $270,000 of NOI, the annualized T3 is $1,080,000, which is higher than the $1,023,932 annual figure. That might be real momentum. It might also be a quarter with light turn volume. Whenever you share an NOI figure, say which period it covers.

NOI vs Cash Flow, Net Income and EBITDA

NOI is one of several "bottom lines." Each answers a different question:

NOI and EBITDA are close cousins. Both ignore financing, depreciation and taxes. The difference is scope: NOI is a property-level measure and usually leaves out owner and corporate costs, while EBITDA is a company-level measure and includes them.

Why NOI Matters to Owners and Lenders

Two formulas explain why owners care so much about a number the site team produces:

Property Value = NOI ÷ Cap Rate
DSCR = NOI ÷ Annual Debt Service

At an illustrative 5% cap rate, the example property's $1,023,932 of NOI implies a value of about $20.5 million. Cap rates vary by market, asset class and time, so treat that as arithmetic, not an appraisal.

The same NOI against an illustrative $800,000 of annual debt service gives a debt service coverage ratio of about 1.28x. Lenders use DSCR to size loans and test whether a property can carry its debt. We go deeper on how DSCR and cap rates work in a separate post.

The point for the site team: a change in NOI changes value by a multiple. At a 5% cap rate, every $1 of annual NOI is worth $20 of value.

The Lender's NOI Isn't Always Your NOI

Lenders and appraisers don't take the operating statement at face value. They underwrite their own version. Fannie Mae's Multifamily Guide, for example, defines Underwritten NOI as "Net Operating Income as adjusted by the Lender."

So the NOI on a loan application can differ from the T12 your team produced, because the lender applies its own vacancy, income and expense assumptions. That's normal. What matters on-site is that your numbers are clean, consistently coded and easy to reconcile. This article explains the concept. It's not financing advice, and loan-program requirements vary.

What Drives NOI On-Site

Margins are tight right now. According to Trepp data reported by CRE Daily, median multifamily NOI growth slowed to 1.8% in 2025 from 3.4% in 2024, as revenue growth eased to 2.8% while median operating expense growth was 3.7%. When expenses grow faster than revenue, NOI growth has to come from execution.

Here's what the site team actually controls:

• Renewals. Every renewal avoids a turn.
• Turn speed. Every day a unit sits empty is lost rent.
• Loss to lease. Renewal pricing that drifts far below market leaves income on the table.
• Concessions. A month free on a 12-month lease is about 8% off that lease's rent for the year.
• Bad debt. Collections discipline shows up directly in EGI.
• Other income. Fees, parking and utility reimbursements. Fees and utility billing (including RUBS) are regulated at the state and local level, so check your local rules before changing them.
• Expense coding. Costs in the right line, in the right month.

Here's the renewal math. Assume (illustratively) that a turn costs $2,500 in make-ready and 20 days of vacancy. At $1,500 a month, a day of vacancy costs about $49.32, so 20 days is about $986. Each avoided turn is worth about $3,486 of NOI.

Ten more renewals a year instead of ten turns:

10 × $3,486 = $34,860 of annual NOI
$34,860 ÷ 5% cap rate ≈ $697,200 of value

Ten leases. Almost $700,000 of value at an illustrative cap rate. That's the conversation owners want to have with the site team.

How NOI Shows Up in the Budget and the Owner Conversation

In a budget review, NOI is the headline. The owner reads it first, compares it to last year, then works backward into the lines that moved.

That's where reviews go sideways. When NOI moves and nobody can say which lines moved it, the owner starts discounting the whole budget. That's the core of the operator–owner trust gap, and it plays out the same way during the year when actuals miss budget.

Explain an NOI variance the way an owner reads it: which revenue or expense lines moved, by how much, and why. "NOI is $42,000 under budget because concessions ran $30,000 over during a lease-up push and utilities ran $12,000 over on a rate increase" is an answer. "We're a little behind" is not.

Then update the forecast. Reforecasting during the year keeps NOI expectations current so the year-end number doesn't surprise anyone.

This is the part of the process where tools help. In Vizibly, reviewer comments and decisions stay attached to the budget lines they're about, so when an owner asks why NOI moved, the reasoning is already on the page.

Common NOI Mistakes

• Booking capital work as repairs. A $60,000 roof replacement coded to R&M lowers NOI by $60,000. At an illustrative 5% cap rate, that makes the property look $1.2 million less valuable.
• Leaving one-time income in the run rate. An insurance recovery or a one-off settlement inflates NOI for one year. Call it out, or the next budget starts from a number you can't repeat.
• Budgeting to physical occupancy. Ignoring concessions, bad debt and non-revenue units overstates EGI and NOI.
• Subtracting debt service. Mortgage payments belong below the line. Including them makes NOI look like cash flow.
• Mixing periods. Comparing an annualized T3 to a T12 without saying so makes trends look better or worse than they are.

FAQ

Is NOI calculated monthly or annually?

Both, but NOI is usually quoted as an annual figure, and the monthly operating statement shows each month's NOI that adds up to the year.

Does NOI include debt service?

No. Mortgage principal and interest are financing costs, so they're subtracted after NOI to get to cash flow.

Is NOI before or after taxes?

NOI is before income taxes, but property taxes are an operating expense and are subtracted to get to NOI.

What is a good NOI for an apartment property?

There's no single good number, so compare NOI per unit and the operating expense ratio against the property's own history, its budget and similar properties in the same market.

What is pro forma NOI?

Pro forma NOI is a projected NOI based on assumptions, such as rents after a renovation or stabilized occupancy, rather than on actual results.

Is NOI the same as EBITDA?

They're similar because both exclude financing, depreciation and taxes, but NOI is a property-level measure that usually excludes owner and corporate costs, while EBITDA covers a whole company.

The Punchline

NOI is the property's operating scorecard. Revenue the property expects to collect, minus the cost of running it. No loans, no capex, no taxes.

Owners turn it into value with a cap rate. Lenders turn it into loan size with DSCR. The site team writes most of it, one renewal and one coded invoice at a time.

Want your team to read the P&L the way owners do? Financials 101 for Property Managers walks through NOI, cap rates and DSCR, with an NOI-to-value calculator built in.

Sources

• Nareit, "Net Operating Income" (glossary). https://www.reit.com/glossary/net-operating-income
• J.P. Morgan, "Calculating net operating income in multifamily real estate," 2024. https://www.jpmorgan.com/insights/real-estate/commercial-term-lending/calculating-net-operating-income-and-cash-flow
• Fannie Mae, Multifamily Selling and Servicing Guide (glossary). https://mfguide.fanniemae.com/fnmf-pdf/download/5106
• CRE Daily, "Multifamily NOI Growth Slowed in 2025 as Costs Cooled," 2026 (Trepp data). https://www.credaily.com/?p=222018