Net operating income
Effective gross income minus operating expenses. It's the property's yearly profit before financing and taxes. The core number used to figure cap rate.
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Free to set up. No credit card.Part 1 of 4
Why a seller cares
NOI is the rental's income after operating expenses and before the mortgage, and it is the number every investor's price starts from. Selling a rental well means having an honest NOI ready, with the records behind it.
Part 2 of 4
A simple example
Your duplex collects $27,000, loses $1,350 to vacancy, and spends $9,650 on taxes, insurance, repairs and management. NOI is $16,000.
| The line | The number |
|---|---|
| Effective gross income | $25,650 |
| Minus operating expenses | $9,650 |
| Net operating income | $16,000 |
| At a 7% cap rate | A value near $229,000 |
NOI is the building's earnings. The cap rate turns it into the price.
Part 3 of 4
What people get wrong
That the mortgage is an operating expense. It is not; NOI is before financing, so two buyers with different loans see the same NOI.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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