Net Operating Income Calculator

Vacancy loss = gross rental income × vacancy allowance ÷ 100; effective gross income = gross rental income + other income − vacancy loss; net operating income = effective gross income − operating expenses; operating expense ratio = operating expenses ÷ effective gross income × 100; cash flow after debt service = net operating income − annual debt service

Gross rental income

A full year of rent at the rates in the leases, before anything is taken off. It is the number on the rent roll rather than the number in the bank, which is why the vacancy allowance is subtracted from it separately instead of being guessed at inside it.

Other income

What the property brings in besides rent: parking, laundry, storage, pet fees, application fees, a late charge that recurs. It belongs in the income of the building, and it is deliberately not reduced by the vacancy allowance — an empty unit does not stop the parking space from being rented, and applying a vacancy rate to income that has no vacancy is the quiet way to make a property look worse than it is.

Vacancy allowance

The share of the year the rent is expected to go uncollected, as a percentage of the rent. It is an allowance rather than an observation: a property fully let today will not stay that way, and the number to use is what the building does over a few years rather than what it happens to be doing this month. It applies to rent only.

Operating expenses

What it costs to run the building: property tax, insurance, management, repairs and maintenance, the utilities the owner carries, landscaping, pest control, the reserve you actually fund. It excludes the mortgage, income tax and capital improvements. This is the line where estimates go wrong most often, both by leaving out the reserves that a roof will eventually need and by including the renovation that adds value rather than keeping the property running.

Annual debt service

The mortgage payments for the year, principal and interest together. It is subtracted last and separately, so the panel shows the property's own performance above the line and the owner's cash position below it — the two numbers answer different questions, and an owner comparing two properties wants the first one before the second.

Net operating income

The property's income after vacancy and operating expenses, before financing. It is the figure a capitalization rate divides by value, and the one a lender sizes a loan against, which is why it is defined the same way in the lending rules rather than left to whatever a seller's spreadsheet happens to include.

Effective gross income

Rent plus other income minus the vacancy loss: what the property can realistically be expected to collect in the year. It is the denominator of the expense ratio, and separating it from the gross rent is what keeps the ratio meaningful.

Operating expense ratio

Operating expenses as a percentage of effective gross income, not of rent and not of value. It says how much of each collected dollar goes to keeping the building running, and it is the quickest way to compare two properties of different sizes — while saying nothing about whether the expenses are being spent well.

Cash flow after debt service

What is left of the net operating income once the mortgage is paid: the owner's pre-tax cash for the year, before income tax and before any capital spending. A positive number here on a property with negative net operating income is impossible, which is the arithmetic way of saying that borrowing cannot turn a losing building into a profitable one — it only changes who absorbs the loss.

Use it before buying or selling a rental property, when comparing two of them, or when checking a listing's claimed income against its claimed expenses — the figure is the input to both the capitalization rate and the gross rent multiplier, and a seller who supplies a net operating income is supplying a number that can be taken apart. It is also what a lender will underwrite the loan against, so working it out yourself is how you find out in advance where the disagreement will be. Two cautions belong with it. The first is that the answer is an allowance, not a record: vacancy and expenses are both forecasts, and small changes in either move the result by more than the rounding on the panel. The second is that net operating income is not a measure of whether the investment is good. It says nothing about the price, nothing about how the purchase was financed, and nothing about the tax position of the owner — a property can have a healthy net operating income and still be a poor purchase at the price being asked, which is a question for the cap rate page. Note also that the first four inputs feed the top half of the panel and the debt service is the only one that does not touch the net operating income at all.

1. The default: 60,000 of rent with a 5 percent vacancy allowance

   1. Vacancy loss: 60,000 × 5 ÷ 100 = 3,000
   2. Effective gross income: 60,000 + 3,000 − 3,000 = 60,000
   3. Net operating income: 60,000 − 21,000 = 39,000
   4. Expense ratio: 21,000 ÷ 60,000 × 100 = 35 percent
   5. Cash flow after debt service: 39,000 − 18,000 = 21,000

   The second line is worth pausing on: the other income of 3,000 and the vacancy of 3,000 cancel, so the effective gross income equals the rent. That is a coincidence of this example and not a rule — the vacancy is charged on the rent alone, so a building with no other income would collect 57,000 instead, and one with a large other income would collect more than its rent.

2. Expenses at 42,000: the same building, worse operation

   1. Vacancy loss: 60,000 × 5 ÷ 100 = 3,000
   2. Effective gross income: 60,000 + 3,000 − 3,000 = 60,000
   3. Net operating income: 60,000 − 42,000 = 18,000
   4. Expense ratio: 42,000 ÷ 60,000 × 100 = 70 percent
   5. Cash flow after debt service: 18,000 − 18,000 = 0

   Doubling the expenses from the default takes the net operating income from 39,000 down to 18,000 — a fall of exactly the 21,000 the expenses rose by, because nothing on the income side moved — and doubles the ratio from 35 percent to 70 percent; the last line lands exactly on zero. That zero is the useful part of the example: the property still produces 18,000 above the line, and the owner collects nothing, because the mortgage eats the whole of it. Two figures, two different questions, which is exactly why the page prints both.

3. Awkward numbers: 96,000 of rent, 8 percent vacancy, no other income

   1. Vacancy loss: 96,000 × 8 ÷ 100 = 7,680
   2. Effective gross income: 96,000 + 0 − 7,680 = 88,320
   3. Net operating income: 88,320 − 30,000 = 58,320
   4. Expense ratio: 30,000 ÷ 88,320 × 100 = 33.972 percent, printed as 33.97
   5. Cash flow after debt service: 58,320 − 24,000 = 34,320

   The expense ratio here is what the denominator is for. Against the rent of 96,000 the same 30,000 of expenses would look like 31.25 percent; against what the property will actually collect it is 33.97 percent. The second number is the honest one, because expenses are paid out of money received, and the money not received is not available to pay them.

4. A small building: 48,000 of rent with a 6.25 percent allowance

   1. Vacancy loss: 48,000 × 6.25 ÷ 100 = 3,000
   2. Effective gross income: 48,000 + 6,000 − 3,000 = 51,000
   3. Net operating income: 51,000 − 30,000 = 21,000
   4. Expense ratio: 30,000 ÷ 51,000 × 100 = 58.823 percent, printed as 58.82
   5. Cash flow after debt service: 21,000 − 12,000 = 9,000

   Here the other income is 12.5 percent of the rent, which is realistic for a small building with parking and a laundry, and it lifts the effective gross income above the rent rather than below it. Read the third line against the first: 51,000 collected against 48,000 of rent is a property whose vacancy allowance costs less than its other income brings in, which is a better position than a headline rent figure suggests.

5. Expenses above the income: 75,000 against 60,000 of rent

   1. Vacancy loss: 60,000 × 5 ÷ 100 = 3,000
   2. Effective gross income: 60,000 + 3,000 − 3,000 = 60,000
   3. Net operating income: 60,000 − 75,000 = −15,000
   4. Expense ratio: 75,000 ÷ 60,000 × 100 = 125 percent
   5. Cash flow after debt service: −15,000 − 0 = −15,000

   Nothing is clamped here and the page prints the loss as a loss: a negative net operating income is what a building with a big repair year, a heavy tax assessment or an extended vacancy actually produces, and a ratio above 100 percent says the same thing in the other direction. With no debt service the two negative figures are equal, which is the clearest way to see that financing is downstream of this calculation rather than part of it.

Every figure except the ones you typed is an allowance, and the result inherits all of their uncertainty at once. Vacancy is a guess about the future, expenses are a budget rather than a record, and a single year of either can be unrepresentative in both directions — a new roof is not annual and a tenant who stays five years is not average. The page also cannot tell whether the expenses listed are complete: the reserve that a building should be funding, the management fee an owner who manages it themselves does not pay, and the capital improvements that will eventually be required are all easy to leave out, and leaving them out raises the net operating income without leaving a trace. Nothing here is a tax calculation, so depreciation, the deductibility of interest and the treatment of a loss are all outside it, and the cash flow shown is before income tax rather than after. And because the output is a single year, it says nothing about what happens next: rent growth, a refinancing, a sale, or the price at which either would happen. The figure is a starting point for those questions rather than an answer to them.

Do mortgage payments come out before net operating income?

No, and keeping them out is what makes the figure useful. Net operating income is what the property produces before financing, so a cash buyer and a leveraged buyer are looking at the same number for the same building; the loan payments are subtracted afterwards, and what remains is the cash flow after debt service. The lending rules draw the line in the same place, defining net cash flow as net operating income less reserves for capital improvements rather than less the mortgage. If you fold the payments into the income figure you can no longer compare two properties, and you can no longer tell whether a poor result came from the building or from the borrowing.

Should the vacancy allowance apply to all the income?

Only to the rent. An empty unit loses its rent, and it does not lose the parking space, the laundry or the storage that are rented separately; applying a vacancy rate to those as well understates the income of a building that has them. This page takes the allowance on the gross rental income alone and then adds the other income on top, which is why the effective gross income can come out above the rent when the other income is larger than the vacancy loss.

What counts as an operating expense?

The costs of keeping the property running and producing rent: property tax, insurance, management, repairs and maintenance, the utilities the owner pays, and the reserves being set aside for the replacements that are certain to come. What does not belong in it: the mortgage, income taxes, and improvements that add value rather than maintain it — a new kitchen is capital, a repaired tap is an expense. The distinction is not pedantic, because capital spending that gets counted as an expense makes the property look worse, while reserves that are never counted make it look better, and both are common.

Can the operating expense ratio be more than 100 percent?

Yes, and the page will print it. It happens when the costs of running the building exceed everything the building collects, which is what a heavy repair year or a long vacancy looks like. The ratio is not clamped to 100 percent because the situation it describes is real, and a page that stopped at 100 percent would be hiding the case where the number is most worth seeing. The same applies to the net operating income itself, which is printed as a negative figure when the property loses money above the line.

Is a higher net operating income a better investment?

Not by itself, because the figure has no price in it. A building producing 60,000 is a better buy at one price than another producing 80,000 at a different one, and the comparison between them is what a capitalization rate is for. Read the net operating income as the first half of that comparison and the price as the second, and be suspicious of a figure presented without the other half — a property's income on its own says nothing about whether you are being asked a fair price for it.

How is this different from the gross rent multiplier and the cap rate?

The gross rent multiplier compares a price against the rent, and the cap rate compares it against the net operating income this page produces. So the three pages differ only in the numerator: the same property run through the gross rent multiplier and the cap rate gives two different numbers, and the gap between them is what it costs to run the building. Working out the net operating income is the step that makes the two comparable, which is why it is worth doing before either of the other two.

• 12 CFR 1240.34, Multifamily mortgage exposures — defines net operating income as rental income less vacancy and property operating expenses, and defines net cash flow as net operating income less reserves for capital improvements, which is where the line between the two figures is drawn — Electronic Code of Federal Regulations (eCFR), U.S. Government Publishing Office (United States)
• Publication 527 (2025), Residential Rental Property — how rental income and the expenses of a rental property are worked out for tax, including which costs of the property are deducted against the rent — Internal Revenue Service (United States)
• Net Income — the glossary definition of income after expenses, the sense in which a property's income has to be net of its operating costs before it is compared against anything — Investor.gov, U.S. Securities and Exchange Commission (United States)