Net Operating Income (NOI) is the true measure of your vacation rental’s ability to generate cash. It tells you exactly how efficient your operations are, regardless of how you financed the property. The formula is straightforward: NOI = Gross Operating Income minus Operating Expenses. Mortgage payments, capital expenditures, and income taxes are excluded, giving you an honest view of property performance that you can compare across your entire portfolio.
TL;DR
- High revenue means nothing if operating expenses eat the profits. NOI reveals what you actually keep.
- The formula: NOI = Gross Operating Income – Operating Expenses.
- Exclude debt service. Mortgage payments aren’t part of NOI, which lets you compare properties regardless of financing structure.
- Track every expense. Hidden costs like software subscriptions, credit card fees, and consumables add up fast.
- Automate for accuracy. Real-time analytics tools eliminate spreadsheet errors and surface expense leaks before they drain annual profits.
What is Net Operating Income in the context of STRs?
NOI represents the total income your vacation rental generates after all necessary operating expenses have been deducted, but before paying your mortgage or income taxes.
Think of NOI as the raw horsepower of your engine. It measures how well the asset performs on its own, independent of your loan structure or tax bracket. This distinction matters for investors because it creates an apples-to-apples comparison between properties. A property bought in cash and a property with a 90% mortgage might have vastly different cash flows, but they could have identical NOIs.
The vanity vs. sanity gap
A common trap: focusing solely on Gross Rental Income. You might bring in $100,000 in bookings, but if you spend $60,000 on cleaning, OTA commissions, and unmanaged utility usage, your NOI drops to $40,000.
A savvier operator might only book $80,000 but runs lean with direct bookings and automated energy management, resulting in an NOI of $50,000. Less “revenue,” far more profitable business.
How do you calculate NOI step by step?
Calculating NOI doesn’t require a finance degree, but it does require strict discipline in categorizing your numbers.
Step 1: Calculate Gross Operating Income (GOI)
Start with your Potential Rental Income (the money you’d make if your property was booked 100% of the time at full price). Then adjust for reality:
- Subtract vacancy losses (nights your property sits empty)
- Subtract credit losses (refunds or chargebacks)
- Add other income (late checkout fees, pet fees, equipment rentals)
The result is your Gross Operating Income.
Step 2: Itemize operating expenses
This is where most errors occur. List every recurring cost required to keep the doors open:
| Expense category | What to include |
| Management fees | If you self-manage, assign a value to your own time |
| Turnover costs | Cleaning fees, linens, restocking supplies |
| Utilities | Electricity, water, internet, smart home subscriptions |
| Insurance and taxes | Property insurance and municipal property taxes (not income tax) |
| Marketing | Direct booking site costs and OTA commissions |
If you’re unsure what qualifies as a deductible operating expense, review a comprehensive STR tax deduction checklist.
Step 3: Apply the formula
Once you have your GOI and total Operating Expenses, subtract the latter from the former.
NOI = GOI – Operating Expenses
Why is NOI the gold standard for 2026 investors?
NOI isn’t just a profitability metric. It’s a valuation tool. In commercial real estate and professional STR investing, property value is often determined by Cap Rate, which relies directly on NOI.
Increase your NOI by lowering expenses or improving revenue management strategies, and you mathematically increase the market value of your asset. For investors looking to sell or refinance, a higher NOI translates directly to a higher sales price or better loan terms.
What NOI mistakes do most hosts make?
Even experienced managers miscalculate NOI. Avoiding these errors keeps your data accurate.
Ignoring hidden operating expenses
Tracking the electric bill is easy. The smaller, frequent purchases slip through:
- Consumables: coffee, toiletries, welcome baskets
- Software stack: pricing tools, digital guidebooks, noise monitors
- Transaction fees: credit card processing (often 3%) is an expense, not a reduction of income
Including debt service
NOI must be debt-neutral. Don’t subtract mortgage principal or interest payments. Debt service is a financing decision, not an operating cost. Include it, and you can’t compare your property’s performance against market benchmarks or other properties in your portfolio.
How should you match your financial tools to your portfolio size?
As your portfolio grows, the complexity of financial reporting evolves. Your toolset should match your scale.
For small-scale hosts (1–3 properties): Guesty Lite
Your priority is automation and simplicity. Capture every booking and expense without drowning in data entry.
Guesty Lite automatically tracks income from Airbnb, Vrbo, and your direct booking site in one place. Centralizing your calendar and inbox cuts the administrative hours that eat into your personal NOI (the value of your time).
For professional managers (4+ properties): Guesty Pro
Once you cross into professional management, financial integrity becomes non-negotiable. You’re likely managing money on behalf of other owners, which requires strict trust accounting.
Guesty’s Accounting features handle this complexity. Generate automated owner statements, manage trust accounts that comply with state regulations, and run custom Profit & Loss reports for every unit. This pinpoints exactly which properties drag down your portfolio’s overall NOI.
FAQs
No. Net Operating Income is calculated before debt service. This shows the property’s earning power independent of how it was financed. If you subtract the mortgage, you’re calculating cash flow, not NOI.
There’s no single magic number since it varies by market and property size. Investors typically look for a Cap Rate (NOI divided by purchase price) between 5% and 10%. A healthy NOI should be stable or trending upward despite seasonal fluctuations.
Yes and no. The cleaning income you collect from guests is part of your Gross Operating Income. The money you pay to cleaners is an Operating Expense. Ideally these cancel out, but often the expense is slightly higher than the income collected.
Focus on operational efficiency. Install smart thermostats that turn off when guests leave to cut utility waste. Build a direct booking channel to reduce reliance on OTAs and save 15%+ in commission fees. Use guest screening tools to prevent damage that hurts your bottom line.
Monthly reviews catch expense leaks before they compound. Quarterly deep-dives help you spot seasonal patterns and adjust strategy. Annual calculations give you the full picture for tax planning and investor reporting.
A B2B marketing professional with deep familiarity in the short-term rental industry, translating complex ideas into clear, engaging content. Writes blogs, web copy, and industry reports that inform and inspire. Uncompromising on the Oxford comma.
