NOI and Gross Rent Multiplier Calculator
Net operating income is effective gross income minus operating expenses (NOI = rent + other income − vacancy − operating expenses), and the gross rent multiplier is price divided by gross annual rent (GRM = price ÷ annual rent).
Last updated: · by MakeLease Editorial Team
| Gross potential income | $62,400 |
| Less vacancy (5.0%) | −$3,120 |
| Effective gross income | $59,280 |
| Less operating expenses | −$21,000 |
| Net operating income | $38,280 |
| Cap rate (NOI ÷ price) | 5.32% |
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How it's calculated
Gross potential income = (monthly rent + other income) × 12
Effective gross income = gross potential income − vacancy and credit loss
NOI = effective gross income − operating expenses
Operating expense ratio = operating expenses ÷ effective gross income × 100
Break-even occupancy = operating expenses ÷ gross potential income × 100
GRM = price ÷ (monthly rent × 12)
- Monthly rent is the scheduled rent for every unit as if all were leased. Use the rent roll or current market rents, and say which.
- Vacancy and credit loss covers empty months between tenants and rent you never collect.
- Operating expenses are recurring costs of running the property. Mortgage payments, depreciation, income taxes and one-time capital improvements are left out, so NOI is the same whether the buyer pays cash or borrows.
- GRM uses gross rent only, before vacancy and expenses. It is quick to compute from a listing, which is why it is used as a first screen.
- Break-even occupancy is the share of potential income you must collect to pay operating expenses. Add your mortgage payment to the expenses to see break-even after debt.
Worked example
The calculator starts with a 4-unit building priced at $720,000, renting for $5,000 a month in total plus $200 a month of laundry and parking income.
- Gross potential income: ($5,000 + $200) × 12 = $62,400.
- Vacancy at 5%: $3,120, leaving effective gross income of $59,280.
- Operating expenses: $8,400 taxes + $3,000 insurance + $4,800 maintenance + $3,600 management + $1,200 other = $21,000.
- NOI: $59,280 − $21,000 = $38,280 a year, or $9,570 per unit.
- Operating expense ratio: $21,000 ÷ $59,280 = 35.4%. Break-even occupancy: $21,000 ÷ $62,400 = 33.7%.
- GRM: $720,000 ÷ $60,000 = 12.00x.
- If similar buildings nearby sell at a GRM of 11, this rent supports a price of about $60,000 × 11 = $660,000, which is $60,000 below the asking price.
The same NOI gives a cap rate of $38,280 ÷ $720,000 = 5.32%. The cap rate calculator turns that around into a price at a target cap rate.
What's a good NOI and GRM?
NOI has no target on its own; it is a dollar figure that has to be read against the price and the loan. What matters is whether it is realistic. Check that the expense ratio is in line with similar properties in your area: a figure far below them usually means something is missing, such as management, repairs or reserves.
For GRM, lower means you pay less for each dollar of rent, but only compare GRMs between similar properties in the same market. A building with a low GRM and high taxes or old systems can be a worse buy than one with a higher GRM. Use GRM to decide which listings deserve a closer look, then underwrite those on NOI, cap rate and debt service coverage.
Common mistakes
- Subtracting mortgage payments from NOI. NOI is before debt service.
- Using the seller's pro forma rents and expenses without checking them against leases, bills and tax records.
- Leaving out vacancy because every unit is leased today.
- Leaving out management because you plan to self-manage. Your time has a cost, and a lender or future buyer will include it.
- Comparing GRMs between a single-family house and an apartment building, or between different markets.
- Counting a one-time capital expense, like a new roof, as an operating expense in a single year.
How rent changes move NOI
Because operating expenses do not rise one-for-one with rent, a rent increase falls almost straight to NOI. In the example, raising rent across the building by $150 a month (3%) adds about $1,710 a year to NOI after vacancy. The rent increase calculator shows the percent and dollar change per unit and the notice rules in your state, and the rent increase notice puts it in writing.
Frequently asked questions
- What counts as an operating expense?
- The recurring costs of running the property: property taxes, insurance, repairs and maintenance, property management, landlord-paid utilities, HOA dues, and similar. Mortgage principal and interest, depreciation, income taxes and one-time capital improvements are not operating expenses and stay out of NOI.
- What is a good gross rent multiplier?
- There is no universal number. A lower GRM means you pay less per dollar of rent, but GRM ignores expenses and vacancy, so two properties with the same GRM can have very different NOI. Compare GRMs only between similar properties in the same market, then check NOI and cap rate.
- How is GRM different from cap rate?
- GRM divides price by gross rent, before any expenses. Cap rate divides NOI by price, after vacancy and operating expenses. GRM is a fast first screen; cap rate is the better comparison once you have real expense numbers.
- What is the operating expense ratio?
- Operating expenses divided by effective gross income. It shows how much of each dollar collected goes to running the property. A ratio far below similar properties often means the expenses are understated, for example with no management or repair budget.
Further reading
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