March 4, 2025•2 min read
Net Operating Income (NOI): The Key to Real Estate Cash Flow
RentalIntel Team
Real Estate Investment Experts
When analyzing a rental property, profitability is everything.
One of the most important numbers? Net Operating Income (NOI).
The Formula
Where:
- Gross Rental Income = Total rent collected annually
- Operating Expenses = Costs like maintenance, property taxes, insurance (but NOT mortgage payments)
Real-Life Example
Rental Income & Expenses
| Category | Amount (Annual) |
|---|---|
| Rental Income | $36,000 |
| Property Taxes | -$4,000 |
| Insurance | -$1,500 |
| Repairs & Maintenance | -$3,500 |
| Property Management | -$3,000 |
| Total Expenses | -$12,000 |
| NOI | $24,000 |
What Does $24,000 NOI Mean?
- This is your true operating profit before mortgage payments.
- A higher NOI means a more profitable property.
- NOI is used to calculate Cap Rate and Debt Service Coverage Ratio (DSCR).
When NOI Matters (and When It Doesn’t)
✅ Core metric for property cash flow
✅ Used in financing & valuation calculations
❌ Doesn’t include loan payments
❌ Doesn’t account for market fluctuations
Pro Tips
- Always separate operating expenses from financing costs.
- Higher NOI = More valuable property (especially for commercial real estate).
- NOI can predict Cap Rate & DSCR, which banks use for lending decisions.
The Bottom Line
NOI is real estate’s core financial metric.
If a property’s NOI is weak, it might not be a great investment.
What’s the NOI rule of thumb in your area? Let’s discuss in the comments!
