In short
Operating expenses include property tax, insurance, maintenance, utilities you pay and management fees.
NOI tells you whether the property makes money on its own, and it's the starting point for comparing investments.
How to calculate NOI
Start with all the income the property brings in over a year: rent, plus extras such as parking or coin laundry. Subtract an allowance for vacancy and unpaid rent.
Then subtract operating expenses: property tax, insurance, repairs and maintenance, any utilities the owner pays, condo fees if it's a condo unit, and property management.
What's left is net operating income. NOI = effective income minus operating expenses.
Do the math on a full year, using twelve months of real figures, so seasonal costs like heating and snow removal are captured.
What NOI leaves out
NOI is calculated before mortgage payments, both principal and interest. That keeps it about the property itself, not how a particular buyer chose to finance it.
It also leaves out income tax and depreciation (capital cost allowance), and big one-off capital projects like a new roof are usually tracked separately as reserves.
Because it ignores financing, NOI tells you whether the building earns money on its own. Your actual cash flow after the mortgage can be very different.
NOI and the cap rate
Divide NOI by the purchase price or market value and you get the capitalization rate, or cap rate. It's a quick way to compare one rental with another, whatever their size or price.
A higher cap rate means more income per dollar of price, but it can also reflect more risk, an older building or a weaker location. Use it as a starting point, not a verdict.
Getting the numbers right in Ottawa
Use the actual City of Ottawa property tax bill, real insurance quotes and the current leases rather than a seller's estimates.
In Ontario, rent increases for most existing tenants are limited by the provincial rent increase guideline, so don't assume you can raise rents to market quickly when projecting income.
If you're buying a condo unit to rent out, review the condo's status certificate for upcoming fee increases or special assessments, since both affect NOI.
Common questions about net operating income
What is NOI in real estate?
NOI, or net operating income, is a rental property's yearly income minus its operating expenses, before mortgage payments. It shows whether the property itself generates money, separate from how it's financed. It's the starting point for comparing rental properties and calculating the cap rate.
Does NOI include mortgage payments?
No, NOI does not include mortgage principal or interest. It's measured before financing so that properties can be compared fairly; your cash flow after the mortgage is a separate calculation. Lenders look at both numbers when you apply for financing.
How do you calculate cap rate from NOI?
Divide the NOI by the purchase price or market value. For example, $20,400 of NOI on a $510,000 property is a 4% cap rate, which you can compare with similar rentals in the same area. A higher cap rate isn't automatically better, since it can reflect higher risk.
What expenses are included in NOI?
NOI includes the regular costs of running the property, such as property tax, insurance, maintenance, owner-paid utilities, condo fees and management. It excludes mortgage payments, income tax and depreciation, and usually large one-time capital projects. Use real bills and quotes, not estimates.
Sources
General information for Ontario, updated October 2026. Not legal, tax or mortgage advice. Rules change, so confirm with your lawyer, lender or the source above before you rely on it.