How to Calculate NOI on a Rental Property
Step-by-step net operating income (NOI) calculation for rental properties—the foundation of cap rate, cash flow, and DSCR—with the exact expense lines Realy uses on Zillow.
Net Operating Income (NOI) is the income a rental property produces before you pay the bank. Every serious metric—cap rate, cash flow, DSCR—starts here. If NOI is wrong, everything downstream is wrong.
The NOI Formula
NOI = Effective Gross Income − Total Operating Expenses
Expanded:
Gross Annual Rent = Monthly Rent × 12
Vacancy Loss = Monthly Rent × Vacancy Months (if modeled)
Effective Gross Income = Gross Annual Rent − Vacancy Loss
Total Operating Expenses =
Property Taxes
+ Insurance
+ Maintenance
+ HOA
+ Property Management
+ Utilities (owner-paid)
+ Other Expenses
NOI = Effective Gross Income − Total Operating Expenses
Not included in NOI: mortgage principal and interest, income taxes, depreciation, capex reserves (unless you model maintenance to cover it).
How Realy Calculates NOI on Zillow
Realy maps each expense line to configurable assumptions:
| Expense | Realy input options |
|---|---|
| Property taxes | % of sale value or $ yearly |
| Insurance | $ yearly, $ monthly, or $ per sqft |
| Maintenance | $ yearly or $ monthly |
| Vacancy | Months of lost rent |
| Management | % of gross rent or $ monthly |
| HOA | $ monthly or $ yearly |
| Utilities | $ monthly or $ yearly |
| Other | $ monthly or $ yearly |
Default profile: 2% property tax, other lines at $0 until you customize. Income defaults to Zillow Rent Zestimate unless you override rent manually.
The engine stores the result as netAnnualIncome in the calculation output—the same number NOI refers to in investor language.
Worked Example
Listing: $119,999 · $1,841/mo rent · 1,294 sqft · Dallas area
Using Realy-style defaults (2% tax, 20% down, 6.5%, 30Y for context—but NOI ignores the mortgage):
| Line item | Annual amount |
|---|---|
| Gross rent ($1,841 × 12) | $22,092 |
| Vacancy (0 mo) | $0 |
| Effective gross income | $22,092 |
| Property tax (2% × $119,999) | $2,400 |
| Insurance, maintenance, HOA (default $0) | $0 |
| Total operating expenses | $2,400 |
| NOI | $19,692 |
Cap rate = $19,692 ÷ $119,999 ≈ 16.4%
Add 8% vacancy ($1,767) and $1,200 insurance → expenses become $4,367 → NOI drops to $17,725 (~14.8% cap). Small assumption changes move NOI significantly.
NOI vs Cash Flow
Annual Cash Flow = NOI − Annual Mortgage Payment
Monthly Cash Flow = Annual Cash Flow ÷ 12
NOI tells you how good the asset is. Cash flow tells you how good the deal is with your financing.
DSCR Uses NOI Too
Debt Service Coverage Ratio:
DSCR = NOI ÷ Annual Mortgage Payment
Realy calculates DSCR when a loan is present. Lenders often want DSCR ≥ 1.20–1.25 on investment property loans.
Practical Checklist Before You Trust NOI
- Validate rent — Compare Rent Zestimate to 3–5 comps.
- Add vacancy — Even 0.5–1 month/year changes NOI.
- Quote insurance — Especially in Texas hail/wind zones.
- Confirm HOA — Condos and townhomes; check rental restrictions.
- Maintenance reserve — 5–10% of rent is common for older stock.
Calculate NOI on Every Zillow Listing Instantly
Open any Zillow property with the Realy extension—NOI, cap rate, and cash flow update as you edit assumptions.
Next read: What is a good cap rate? · Cash-on-cash formula