Cap rates are built on net operating income, or NOI, and so is the rental calculator’s debt coverage ratio. The arithmetic takes a few minutes. The part people disagree on is which costs belong in it, which is how two people can run the same house and get different answers.
What is NOI in real estate?
NOI is a year of rent, less an allowance for empty months, less what the property costs to run. It counts everything above the mortgage payment and nothing below it.
The mortgage stays out on purpose. The loan is how you paid for the house, not a cost of running it, so a house has the same NOI bought with cash or with a loan for 80% of the price. That’s what makes NOI a fair way to compare rentals bought in different ways.
To calculate it:
- Add up a year of rent, plus any other income the property brings in, such as a parking fee or a coin laundry.
- Take off an allowance for empty months. Investors call this vacancy.
- Take off the running costs: property taxes, insurance, repairs, savings for big replacements, a property manager, and any homeowners association (HOA) dues or utilities you pay as the owner.
- Stop before the mortgage. What’s left is NOI.
How do you calculate NOI on a rental property?
Work down from a year of rent, one cost at a time, and stop before the loan. Take a $250,000 single-family house that rents for $2,750 a month. Property taxes are $3,000 a year and insurance is $1,400. The example sets aside 5% of the rent for empty months and 5% for maintenance, the everyday repairs. Another 5% goes to a CapEx reserve (short for capital expenditures), which is savings for replacing big items like the roof or the furnace. A property manager takes 8%. There are no HOA dues, and the tenant pays the utilities.
| A year | |
|---|---|
| Rent ($2,750 a month) | $33,000 |
| Vacancy (5% of rent) | −$1,650 |
| Property tax | −$3,000 |
| Insurance | −$1,400 |
| Maintenance (5% of rent) | −$1,650 |
| CapEx reserve (5% of rent) | −$1,650 |
| Property management (8% of rent) | −$2,640 |
| Net operating income (NOI) | $21,010 |
These are example figures, not a forecast for any market.
The running costs come to $10,340 a year. With the $1,650 for empty months, $11,990 of the $33,000 is spoken for before the first loan payment.
These are the numbers the rental calculator opens with. Its “Where the money goes each month” table runs the same lines a month at a time, down to a line labeled “Net operating income (NOI)”: $1,751 a month, or $21,010 over a year. Nothing in its Financing section changes that line.
If you check it by hand, note that the calculator takes maintenance, the reserve and management as a share of the full rent, before the vacancy allowance: management is 8% of $33,000. The vacancy allowance comes off any other income too.
Five percent for empty months is about 18 days a year. For a national yardstick, as of September 2026 the Census Bureau’s latest vacancy release, published July 28, put the rental vacancy rate at 7.3% for the second quarter of 2026. That’s the share of rental homes that were empty and for rent. At 7.3%, this house’s NOI falls to $20,251.
What doesn’t count in NOI?
Anything that depends on how you paid for the house, or on your own tax return, stays out of NOI.
- The mortgage payment. Principal and interest are the dividing line between NOI and cash flow. If your lender collects property taxes and insurance with the payment, those still count in NOI, because they’re costs of running the house. Only the loan’s share stays out.
- What it cost to buy. The down payment, closing costs and any work before the first tenant are the cash you put in, not a yearly running cost.
- Income tax and depreciation. Both belong to your tax return. NOI is counted before tax.
Take the mortgage off NOI and what’s left is cash flow. Here the loan is $200,000 at 7% over 30 years, and its payments come to $15,967 a year. That leaves $5,043, or $420 a month. How to calculate cash flow on a rental property takes that last step line by line, and how much a rental should cash flow asks whether $420 is enough.
Is CapEx included in NOI?
The rental calculator counts the CapEx reserve in NOI, and not everyone does. Some investors subtract big replacements after NOI instead of before it, and an owner who manages the house may leave management out as well. Here’s what each choice does to the same house.
| NOI a year | Cap rate | |
|---|---|---|
| Every cost counted, as in the calculator | $21,010 | 8.4% |
| CapEx reserve left out | $22,660 | 9.1% |
| CapEx reserve and management left out | $25,300 | 10.1% |
Nothing about the house changed between those rows. The roof wears out at the same pace however you count it, and a manager charges from the day you hire one. Leaving both costs out adds $4,290 a year to NOI and about 1.7 points to the cap rate.
So when a seller or a listing quotes an NOI or a cap rate, ask which costs it includes before you set it beside yours. To size the reserve for a particular house, item by item, see how much to save for repairs and replacements.
What is NOI used for?
NOI feeds two of the rental calculator’s ratios. The cap rate is a year’s NOI divided by the price: $21,010 on $250,000 is 8.4%. Cap rate vs. cash-on-cash return shows how it differs from the return on your own cash.
In the calculator, debt coverage, or DSCR, is NOI divided by a year of loan payments, so it shows how many times NOI covers the loan. Lenders don’t all count it the same way, so ask which formula yours uses. The calculator’s “Debt coverage (DSCR)” line shows 1.32 for this house, from $21,010 against $15,967.
How do you work out NOI on a house you’re considering?
The same lines work on any listing, as long as the inputs come from that house.
- Start from real leases. Use what similar homes nearby have rented for recently, not the asking rent, and multiply by 12.
- Replace every guess you can: the county’s tax rate on the price you’d pay rather than the seller’s bill, a landlord insurance quote for the address, and the HOA’s current dues.
- Enter the numbers in the rental calculator and read the NOI line in its “Where the money goes each month” table, then multiply by 12 for the year.
- Rebuild any NOI a seller hands you with your own vacancy, reserve and management in it before you compare prices or cap rates.