Question 1

What is Net Operating Income (NOI)?

Accepted Answer

Net Operating Income is your gross revenue minus your operating expenses. It's a measure of a property's profitability before considering debt service (mortgage) and income taxes. A higher NOI is better.

Question 2

Are mortgage payments considered an operating expense?

Accepted Answer

No, mortgage payments (both principal and interest) are considered a financing cost, not an operating expense. This calculator focuses on the operational efficiency of the property itself, independent of how it's financed.

Question 3

What's a good Operating Expense Ratio (OER) for a vacation rental?

Accepted Answer

A good OER for a short-term rental is typically between 30% and 50% of gross revenue. Self-managed properties often have lower ratios (30-40%), while properties using full-service management might be in the 40-50% range or higher.

Question 4

How can I reduce my operating expenses?

Accepted Answer

Focus on the largest expense categories first. Common strategies include: shopping around for better insurance rates, appealing property taxes, performing preventative maintenance to avoid costly repairs, and buying supplies in bulk. If you self-manage, you can save significantly on management fees.

Question 5

Should I include initial setup costs in this calculation?

Accepted Answer

No, this calculator is for ongoing operating expenses. Initial setup costs like furniture, renovations, and initial deep cleaning are considered capital expenditures (CapEx) and should be analyzed separately as part of your overall investment return.

Operating Expense Calculator

Results

Understanding Operating Expenses

Frequently Asked Questions

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