Real Estate
Net operating income
Every income line in, every running cost out, nothing about the loan.
The Formula
NOI = rent x 12 x (1 - vacancy) + other income - operating expenses
Every income line in, every running cost out, nothing about the loan.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| NOI | Net operating income | currency per year | What the property earns before debt. |
| r | Monthly rent | currency per month | The rent collected per month. |
| v | Vacancy rate | decimal | The share of rent never collected. |
| E | Operating expenses | currency per year | The annual cost of running the property. |
What Each Symbol Means
NOIcurrency per year
Net operating income
What the property earns before debt.
rcurrency per month
Monthly rent
The rent collected per month.
vdecimal
Vacancy rate
The share of rent never collected.
Ecurrency per year
Operating expenses
The annual cost of running the property.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate cap rate page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Cap Rate, filed under Finance. Every number the guide produces comes from substituting into this one line.