How the NOI Calculator Works

One calculation engine produces every number on this site, from the homepage calculator to the tables on the NOI and price pages. This page documents what it does so you can check it.

Net operating income

gross scheduled income   = (monthly rent + other monthly income) × 12
effective gross income   = gross scheduled income × (1 − vacancy %)
operating expenses       = taxes + insurance + HOA × 12 + utilities × 12 + other × 12
                         + (maintenance % + capex % + management %) × effective gross income
net operating income     = effective gross income − operating expenses

No financing enters the calculation. Mortgage payments, down payment and interest rate are excluded by definition, as are depreciation and income taxes.

Percentage expenses are applied to collected (effective) income, not to scheduled rent. Capital reserves are treated as an operating expense, which is the conservative convention for small residential property and the one most lenders use; some commercial appraisals place reserves below NOI.

Ratios

• Expense ratio = operating expenses / effective gross income
• NOI margin = NOI / effective gross income, which is 100% minus the expense ratio
• NOI per unit = NOI / units
• Cap rate = NOI / purchase price, shown only when a price is entered
• Gross rent multiplier = price / gross scheduled income

Value at a market cap rate

value = net operating income / (market cap rate / 100)
value gap = value − price

Rent for a target NOI

NOI is linear in rent, so the solver is direct:

EGI needed    = (target NOI + fixed expenses) / (1 − percentage expenses)
gross needed  = EGI needed / (1 − vacancy %)
rent needed   = gross needed / 12 − other monthly income

Fixed expenses are taxes, insurance, HOA, utilities and other dollar-denominated costs. Percentage expenses are maintenance, reserves and management.

Sensitivities

• NOI per $100 of monthly rent = 1,200 × (1 − vacancy) × (1 − percentage expenses)
• NOI per point of vacancy = gross scheduled income / 100 × (1 − percentage expenses)
• Value per $1,000 of annual NOI = 1,000 / market cap rate

Expense ratio bands

• Lean: under 30%
• Typical: 30% to 45%
• Heavy: 45% to 60%
• Very heavy: 60% and above
• Negative: NOI below zero

These describe where expense ratios commonly fall across US residential rentals with every line counted. They are not a judgment of a specific property. A lean ratio on a listing most often means management, reserves or vacancy were left out.

Assumptions on the NOI and price pages

• Vacancy: 5% of scheduled income
• Property taxes: 1.2% of price per year. Insurance: 0.5% of price per year
• Maintenance 5%, capital reserves 5%, management 8% of collected income
• No HOA, utilities, other income or other expenses
• Market cap rate: 6.5%
• "Typical rent" on price pages: 0.85% of price per month, rounded to $25
• On the NOI pages, the example property is priced so that the NOI is a 6.5% cap rate, rounded to $5,000, and rent is solved to produce the NOI exactly

Taxes and insurance vary widely by state. The homepage calculator lets you replace every assumption with a real figure.

Rounding

Rents in tables are rounded to the nearest $5 and dollar figures to the nearest dollar for display. Percentages are computed from unrounded values, so a displayed rent may reproduce an NOI that differs by a few dollars.

Source code

The engine is a small TypeScript module with unit tests covering the income statement, the ratios, the value and rent solvers and the sensitivity figures.