Net operating income, defined

Net Operating Income (NOI) is a rental property's total income minus its operating expenses, calculated before mortgage payments and income taxes. It answers a simple question: how much money does the building itself produce from its operations, independent of how you financed it?

Because NOI strips out debt and taxes — items that vary from owner to owner — it's the industry-standard way to measure and compare the earning power of income properties. It's also the input for other key metrics like cap rate and property valuation.

The net operating income formula

The formula is straightforward:

NOI = Gross Operating Income − Operating Expenses

  • Gross Operating Income = all rental income + other income (laundry, parking, fees) − a vacancy and credit-loss allowance.
  • Operating Expenses = property taxes, insurance, repairs and maintenance, owner-paid utilities, water and sewer, management fees, and routine building costs.

What you leave out is just as important. NOI does not subtract:

  • Mortgage principal and interest (debt service)
  • Income taxes
  • Depreciation
  • Capital improvements (a new roof, boiler, or renovation)

Those belong to your financing and tax picture, not the property's operating performance.

A simple NYC example

Say a small Brooklyn multifamily collects $180,000 a year in rent with $6,000 in other income, and you budget a 4% vacancy allowance. Gross operating income is roughly $178,560. If annual operating expenses — taxes, insurance, water, repairs, and management — total $78,560, then:

NOI = $178,560 − $78,560 = $100,000 per year

(Figures are illustrative, for demonstration only — every building's actual numbers differ.)

That $100,000 is what the property earns before the owner's mortgage and taxes. Divide it by the purchase price to get the cap rate; subtract annual debt service to estimate cash flow.

Why NOI matters more in New York

In NYC, NOI is where ownership succeeds or struggles — especially in rent-stabilized buildings. Regulated rents can only rise by the amounts the Rent Guidelines Board sets each year, while property taxes, insurance, heating fuel, and water charges often climb faster. That gap puts constant pressure on the bottom line.

Two levers protect NOI, and both come down to operations:

  • Maximize income — keep units occupied and leased quickly. Our brokerage-born leasing engine routinely fills vacancies fast, and vacancy is a direct drag on NOI.
  • Control expenses — negotiate vendors, prevent small problems from becoming costly emergencies, and stay compliant so HPD violations and fines never eat into returns.

Clear owner financial reporting through our AppFolio portal makes your NOI visible month to month, so you always know where the building stands.

See your building's numbers

Curious what your property could actually net? Start with a property consultation — we'll walk through realistic income, expenses, and the NOI your building should be producing. Or get in touch and talk it through with a principal directly.