NOI — Net Operating Income
Net Operating Income (NOI) is gross revenue minus all operating expenses, excluding mortgage debt service and depreciation — the foundation of real estate valuation.
NOI is the most fundamental metric in commercial real estate and forms the basis of cap rate, DSCR, and property valuation. It measures how much cash a property generates from operations before considering how it's financed.
For STR properties, operating expenses include: platform fees (Airbnb/VRBO), cleaning costs, property management, property taxes, insurance, HOA fees, utilities, maintenance and repairs, supplies, and any other regular operating costs. Mortgage interest and principal payments are NOT included in operating expenses for NOI purposes.
A typical STR property has an operating expense ratio of 35–55% of gross revenue, meaning NOI is 45–65% of gross revenue. Properties with professional management have higher expense ratios (closer to 55%); self-managed properties with good cost control can achieve 40–45% expense ratios.
NOI is used to value properties using the cap rate formula (Property Value = NOI ÷ Cap Rate) and to qualify for DSCR loans. Improving NOI by increasing revenue or reducing expenses directly increases your property's value and financing options.
Formula
NOI = Gross Revenue − Total Operating ExpensesCalculate It
Quick Calculator
NOI = Gross Revenue − Total Operating Expenses
Net Operating Income (NOI)
$37,000
Worked Example
A property generates $65,000 gross revenue with $28,000 in operating expenses. NOI = $65,000 − $28,000 = $37,000.
Related Terms
Related Calculators
Frequently Asked Questions
What expenses are included in NOI?+
Platform fees, cleaning costs, property management, property taxes, insurance, HOA fees, utilities, maintenance and repairs, supplies, and professional services (accounting, legal) are all included. Mortgage interest/principal and depreciation are excluded from NOI calculations.
What is a typical STR expense ratio?+
STR properties typically have operating expense ratios of 35–55% of gross revenue. Self-managed properties tend to be 35–45%; professionally managed properties are 45–55% (due to 20–30% management fees). Budget 40–45% for operating expenses when underwriting a new STR deal.
How does NOI relate to property value?+
Property Value = NOI ÷ Cap Rate. If a property generates $40,000 NOI and comparable properties sell at 8% cap rates, the implied value is $40,000 ÷ 0.08 = $500,000. Increasing NOI by $5,000 at an 8% cap rate increases property value by $62,500 — this is the power of operating improvements.
Why doesn't NOI include mortgage payments?+
NOI is designed to be financing-neutral — it measures the property's intrinsic income generating ability regardless of how it's financed. This allows investors and appraisers to compare properties and determine value without being affected by each buyer's unique financing structure.
What is the difference between NOI and cash flow?+
NOI = Gross Revenue − Operating Expenses (before debt service). Cash Flow = NOI − Annual Debt Service (mortgage payments). NOI is a property metric; cash flow is an investor metric that depends on your specific loan terms.