Net Operating Income (NOI)

Net Operating Income or NOI is a basic calculation used in real estate and rental property investment to help an investor or property buyer determine the potential profitability of their property investment purchase.

The NOI is used to determine whether a real estate property or investment purchase will be able to operate at a profitable return, after subtracting all the necessary operating expenses.

Why Net Operating Income is Used

The most basic usage of NOI is to examine how underlying cash flows of an investment property will be affected before subtracting all taxes, and financial operating costs.

Before an investor either purchases an investment property or puts it on the market, the NOI will help them determine the property valuation, as a way to understand the value they need to add to the property.

Net operating Income Formula

To calculate the Net Operating Income, investors use the following formula:

NOI = Gross Operating Income + Other Income – Operating Expenses

Important Calculations to Consider

Gross Operating Income = Potential Rental Income – Vacancy Rates

The Potential Rental Income is the amount you’ll make if the property was 100% rented for 100% of the time. To determine if this is possible, or what the current lease percentage per year is, it’s possible to ask previous tenants, owners, and the current tenants that reside there.

Net Operating Income Example

An investment property, with two-unit apartments, is currently available, with a monthly rent of $1,800. If both units were to be occupied for a full year, the Potential Rental Income (PRI) would be $43,200 per year.

There’s a small coin laundry machine that makes about $650 per year.

Currently, the vacancy losses are about 7% which is equal to PRI x 0.7, or $3,024 per year.
Gross Operating Income = $43,200 – $3,024 = $40,176.
The current balance sheet indicates that operating expenses are about $9,400 per year.

Net Operating Income = $40,176 (GOI) + $650 (other income) – $9,400 (Operating Expenses) = $31,426 NOI annually.

How helpful is this content?

Share this article:

Join a community of 350,000+ members

  • Gain access to unique offerings previously reserved for the ultra-wealthy

  • Customize your portfolio for income, growth, or a balance of both

  • Get started today and earn an average IRR of over 8%

What investors are saying about Yieldstreet

Apr 2022

The due diligence, risk management, and product education materials are thorough, excellent, and easy to use and understand.

Manoj J
Member since 2019
Apr 2022

Excellent and unique selections that I can't find elsewhere.

Jonathan S
Member since 2019
Apr 2022

The platform delivers in a very concise manner. Easy to get a clear understanding at a glance from the web or mobile app.

Tim S
Member since 2021
The testimonials presented on this page have been provided by actual investors in Yieldstreet funds without compensation. Yieldstreet has selected the testimonials, and certain testimonials have been edited to remove personally identifiable information and for brevity. Testimonials were not selected based on objective or random criteria, but rather were selected based on Yieldstreet's understanding of its relationship with the providers of the testimonials. The uncompensated testimonials presented here may not be representative of other investors' experiences, and there can be no guarantee that investors will experience future performance or success consistent with the testimonials presented.

The Yield

Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.

Since inception, over $2.5B has been invested on Yieldstreet

Join today for free to access alternative investment opportunities.