Net Operating Income: What a Property Earns Before the Loan

Net operating income (NOI) is what a property earns from operations after expenses, before any loan payments. It measures the property, not the financing.

NOI = gross income − vacancy − operating expenses

Which expenses go in

Property taxes, insurance, management, repairs and maintenance, owner-paid utilities, landscaping, and leasing costs. What does not: mortgage payments, depreciation, big capital improvements and income taxes. Many lenders do deduct a yearly reserve for replacements, such as roofs and HVAC, even though it is not a monthly bill.

A simple example

Example, round numbers. A triplex rents for $4,000 a month, or $48,000 a year. Budget 5% for vacancy: $2,400. Expenses total $15,600. NOI = $48,000 − $2,400 − $15,600 = $30,000.

How it gets used

Divide NOI by value and you get cap rate. On commercial and larger multifamily loans, lenders typically divide NOI by annual debt service to get the debt service coverage ratio (DSCR). On many 1 to 4 unit rental loans, lenders use a simpler test that compares gross rent to the monthly payment including taxes and insurance. Either way, stronger income relative to the payment helps your loan.

Common mistakes

Counting the mortgage as an expense. Skipping vacancy. Forgetting management because you self-manage. Using hoped-for rents instead of market-supported ones.

Why it matters to you

NOI drives value and loan sizing on income property. Build it from honest numbers so the deal holds up in underwriting.

RSC Private Lending's DSCR Rental program qualifies 1 to 4 unit rentals on property cash flow rather than personal income documents, with a minimum DSCR of 0.75x. Send us your scenario for a term sheet in 24 hours. Subject to underwriting.