What Is a Good NOI for a Multifamily Investment Property?

There is no single dollar figure that makes a multifamily NOI "good." A good NOI is one that does three jobs: it covers the loan payment with room to spare, it supports the price you are paying, and it holds up when a lender re-checks the numbers.

This guide shows how to calculate net operating income (NOI), how to test it against a lender's debt service coverage ratio (DSCR) and a market cap rate, and what to do if your NOI falls short. It is written for investors using multifamily investment loans to buy or refinance 5+ unit buildings.

Illustrative numbers throughout. Market rents, expenses and cap rates vary by city and property.

What Counts as a Good NOI for a Multifamily Property?  

A good multifamily NOI passes three tests. Fail any one and the number is not good enough, however big it looks.

1. The coverage test. NOI divided by annual debt service must meet the lender's minimum DSCR.
2. The value test. NOI divided by a realistic market cap rate must support what you are paying or what you want to borrow against.
3. The reality test. The NOI must come from verifiable income and complete expenses, not a seller's best-case projection.

Why there is no universal benchmark

NOI scales with building size, rents, taxes, insurance and local costs. A $180,000 NOI is strong on a 20-unit building and thin on a 90-unit building with the same loan. Compare NOI to the debt it must carry and to similar buildings in the same market, not to a number from another city.

How to Calculate NOI for a Multifamily Property ?

NOI is the property's income minus its operating expenses, before debt payments. As InstaLend puts it, it is rental revenue minus operating costs such as maintenance, insurance, taxes and management, before debt service. Lev's guide to DSCR uses the same structure: effective gross income minus operating expenses.

Leave out: mortgage payments, depreciation and your personal income taxes. Lenders may also deduct a reserve for replacements, so ask how they treat it.

Test 1: Does Your NOI Cover the Loan? (DSCR)

DSCR is NOI divided by annual debt service. InstaLend's multifamily term loans list a minimum DSCR of 1.20x to 1.25x, and say 1.25x or higher is typically needed for favorable terms. Flip the formula to see what you need:

Required NOI = annual debt service x minimum DSCR

For example, if your loan payments total $144,000 a year and the lender needs 1.25x, you need at least $180,000 in NOI. If the building only produces $160,000, either the loan has to shrink or the NOI has to grow. Our guide to DSCR requirements for multifamily term loans goes deeper.

Some lenders also size on debt yield, which is NOI divided by the loan amount. For example, $1.5 million of NOI on a $12 million loan is a 12.5% debt yield, per an American Bar Association overview of multifamily performance ratios. Ask which tests apply to your deal.

Test 2: Does Your NOI Support the Price? (Cap Rate)

Cap rate is NOI divided by property value. Flip it to get value: value = NOI / cap rate. A 6% cap rate on $120,000 of NOI implies a $2 million building.

Small cap rate changes move value a lot. Here is $180,000 of NOI at four cap rates:

Use cap rates from real sales of similar buildings in your submarket, not a national average. If the price you are paying implies a cap rate far below comparable sales, your NOI is not supporting the price, however good it looks.

Test 3: Is Your NOI Real?

A lender will not take a pro forma at face value, and you should not either. Best Ever CRE's multifamily deal checklist makes the point plainly: underwrite the NOI yourself instead of relying on the broker's numbers.

Common places NOI gets inflated:

• Missing or underreported expenses, especially insurance, taxes after a sale reassessment, and management.
• Vacancy assumptions that are too low for the building's history.
• One-time income counted as recurring.
• Rents above what tenants actually pay, which is why a rent roll and trailing operating statement matter.

Lenders typically re-underwrite with their own assumptions. [CONFIRM: InstaLend's NOI underwriting method and any reserve or vacancy factors it applies.]

A Worked Example: 20 Units, Three Tests

Here is a hypothetical 20-unit building, with every number illustrative.

Now run the three tests:

• Coverage: at 1.25x, the building supports up to 144,000ofannualdebtservice(180,000 / 1.25). At 1.20x, it supports $150,000.
• Value: at a 6% cap rate, the NOI implies a $3.0 million value.
• Reality: this only works if the 6% vacancy and $135,840 of expenses match the trailing 12 months and a rent roll. Check both.

Is this a good NOI? It is good for this building if it passes all three. It would not be good if debt service were $170,000, or if comparable sales trade at a 7% cap rate and you are paying a 5.5% price.

How to Raise NOI Before You Apply

If your NOI falls short, the fix is some mix of more income and lower expenses:

• Bring below-market rents toward the market as leases roll.
• Cut vacancy by fixing turn times and unit condition.
• Add documented other income such as laundry, parking or utility billing where allowed.
• Audit expenses: insurance quotes, property tax appeals and vendor contracts.

If the building needs more than light work, the term loan may not fit yet. InstaLend's multifamily bridge loans cover value-add buildings, and you refinance into the term loan once occupancy and NOI are in range. See bridge financing vs. permanent loans.

How InstaLend Uses NOI in Multifamily Term Loans

Among multifamily mortgage lenders, InstaLend qualifies term loans on the building's income and value, not your personal income. These are the published parameters:

A strong NOI is what unlocks a multifamily refinance loan, including cash-out. Start by sending the address, unit count, occupancy, rent roll and annual NOI.

For how lenders read a property more broadly, see how multifamily mortgage lenders evaluate properties.

FAQs

What is a good NOI for a multifamily property?

One that covers the loan at the lender's minimum DSCR, supports the price at a realistic cap rate, and can be verified. There is no universal dollar figure; it depends on building size and market.

What NOI do I need to qualify for a multifamily loan?

Multiply your annual debt service by the lender's minimum DSCR. InstaLend's term loans list 1.20x to 1.25x, so $144,000 of debt service needs about $172,800 to $180,000 of NOI.

Is higher NOI always better?

Higher is better only if it is real. A high NOI built on understated expenses or one-time income can fail a lender's re-underwriting and mislead you on price.

What is the difference between NOI and cash flow?

NOI is before debt service. Cash flow is what remains after you pay the loan and any capital reserves.

Does a better NOI help with a refinance or cash-out?

Yes. Higher, documented NOI can raise the value the lender sees and the loan the building supports. InstaLend's term loans can be used for refinance and cash-out on stabilized properties.

Do I need tax returns for a multifamily term loan?

Not with InstaLend. Approval is asset-based on the property's NOI, DSCR and value, with no W-2s or tax returns required.

Which states are available?

46 states. InstaLend does not lend in North Dakota, South Dakota, Arizona, California or Utah. See where we lend.