Knowledge Base
Net Operating Income (NOI)
Net operating income (NOI) is a rental property's effective gross income minus its operating expenses, calculated before debt service, capital expenditures, income taxes, and depreciation.
How NOI is calculated
NOI starts with effective gross income — the rent and other income a property actually collects — and subtracts operating expenses: payroll, repairs and maintenance, utilities, insurance, taxes, administrative costs, and management fees. Debt service, capital expenditures, and depreciation stay out of the calculation. The National Apartment Association's 2024 benchmarking data put total operating expenses at $8,657 per unit, so the expense side of the equation carries real weight: a 200-unit property runs over $1.7 million of operating cost through this line every year.
Why NOI matters to owners and operators
NOI is the number a property is priced on. Value is NOI divided by the cap rate, so every operating dollar flows through with leverage: at a 5 percent cap rate, one dollar of annual expense savings adds twenty dollars of asset value. That is why expense savings compound into property value faster than rent growth of the same size — a dollar saved carries no vacancy, no concessions, and no turnover cost. Lenders size loans on NOI. Buyers underwrite on it. Asset managers are measured on it.
Common mistakes that distort NOI
Two errors show up constantly. The first is classification: pushing repairs into capital expenditures flatters NOI without changing what the property spends. The second is inattention to small lines. Multifamily posts thousands of low-value charges a year, and none is individually worth a meeting, but the aggregate carries real money. The Benchmark prices every repairs-and-maintenance line item against verified suppliers for exactly this reason — on average it finds $22,546 in annual savings for a 200-unit property, all of which lands in NOI.
Related terms
Start with one property and one quarter
Send us a quarter of invoices and we will show you what it should have cost. If there is nothing there, we will tell you that too.
