Does NOI include the mortgage payment?

No. NOI deliberately excludes mortgage principal and interest so it reflects the property's operating performance alone, independent of how the buyer chooses to finance it.

What expenses count in NOI?

Operating expenses like property tax, insurance, maintenance, management, utilities the owner pays, and a vacancy allowance. It excludes financing costs, capital improvements, and income tax.

Why do lenders care about NOI?

Because NOI shows how much income the property generates to support debt and value. A strong, verifiable NOI can improve how a lender views an investment-property mortgage application.

Mortgage Glossary

What is Net Operating Income (NOI)?

Net operating income, or NOI, is a rental property's gross income minus its operating expenses, before any mortgage payments. Operating expenses include property tax, insurance, maintenance, management, and a vacancy allowance. NOI shows how much money the property itself produces, independent of how it is financed.

Find my best mortgage Back to glossary

Quick answer

Also known as: NOI, net operating income

Key points

NOI equals gross income minus vacancy and operating expenses.
It excludes mortgage payments, capital costs, and income tax.
NOI is the numerator in the cap rate formula.
Lenders and appraisers use NOI to value income properties.
Higher, stable NOI supports stronger value and financing.

Net Operating Income (NOI) explained

NOI is calculated by taking gross rental income, subtracting an allowance for vacancy and credit losses, and then deducting operating expenses such as property tax, insurance, repairs and maintenance, property management, and utilities the owner pays. Crucially, it excludes mortgage principal and interest, capital improvements, and income tax, because those depend on financing and ownership choices rather than the property's operations.

In Canada, NOI is the foundation for other investment measures. It is the numerator in the cap rate calculation and a key input lenders and appraisers use to value income properties. A higher, stable NOI generally supports a higher value and stronger financing, while inconsistent income or rising expenses pull it down.

What a Net Operating Income (NOI) is for

NOI exists to isolate a property's true operating performance from financing and tax effects. It tells investors, lenders, and appraisers how much cash the bricks and mortar generate, which is the basis for valuing the property and comparing it fairly against others.

How it can help you

A clear, well-documented NOI helps you understand whether a property pays its own way before debt, and it strengthens your case with lenders, who lean on NOI to value income properties and assess risk. Lenderoo shops 40+ lenders for free, so a solid NOI can help you qualify for an investment-property mortgage on better terms.

When it comes up

NOI matters when an investor evaluates whether a triplex can carry itself. By calculating NOI, they see the income left after all operating costs, which tells them how much room exists to cover mortgage payments and still generate positive cash flow.

Example: building up NOI

A triplex collects $54,000 a year in gross rent. You set aside 4% for vacancy, about $2,160, leaving effective income of $51,840. Operating expenses are property tax $6,000, insurance $2,400, maintenance $4,000, and management $4,000, totalling $16,400.

Net operating income equals $51,840 minus $16,400, or $35,440. Notice the mortgage is not subtracted here. If the property is valued at $640,000, the cap rate would be $35,440 divided by $640,000, or about 5.5%.