NOI Calculator (Net Operating Income)

What is NOI?

Net Operating Income is the annual cash profit a rental property generates from operations before the owner's financing, taxes-on-income, depreciation, and capital improvements. It answers one question: "if I owned this property free and clear, how much would it actually earn me each year?" That makes it the single most important number in commercial-style real-estate analysis — because it strips out the buyer's individual financing terms and tax bracket, two investors comparing the same building can agree on its NOI even if they'd structure the purchase very differently.

The formula

NOI = (Gross Potential Income + Other Income − Vacancy & Credit Loss) − Operating Expenses
    = Effective Gross Income (EGI) − Operating Expenses

NOI is the input to two other key metrics: cap rate (NOI ÷ purchase price) and debt service coverage ratio (NOI ÷ annual mortgage payment), used by lenders to size loans.

What goes in, what stays out

Include in operating expenses:

• Property tax (annual)
• Property insurance (landlord policy / building cover)
• Repairs & maintenance — recurring small fixes; budget 1–2% of property value/year as a default if no history
• Property management — even if you self-manage, impute 8–10% of effective gross income, otherwise you're hiding labour cost and overstating NOI vs comparable institutional deals
• Utilities that the owner pays (electricity for hallways, water if landlord-paid, etc.)
• HOA / condo / building fees
• Replacement reserves — money set aside for predictable future replacements (roof every ~25y, HVAC ~15y, appliances ~10y); typical reserve: 5–10% of EGI

Do NOT include (these go elsewhere):

• Mortgage interest + principal. NOI is pre-financing. Subtract debt service afterwards to get cash flow before tax.
• Depreciation. It's a tax book-entry, not a cash item.
• Income tax. NOI is pre-tax-on-income.
• Capital expenditures (CapEx). Replacing the roof or the HVAC system in year 7 is not an operating expense — it's a depreciable capital improvement. The recurring reserve you set aside is opex; the actual replacement check you write later is not.
• One-off purchase costs. Closing fees, due diligence, agent commissions belong in the cost basis, not opex.

Vacancy & credit loss

Even fully-occupied buildings have downtime between tenants and occasional non-payment. The vacancy and credit loss adjustment captures both. Typical defaults:

• Stable urban multifamily: 5%
• Single-family residential in a tight market: 3–5%
• Looser market or B/C class: 7–10%
• Class A new build during lease-up: 15–25% in year 1

If you have actual rent-roll history, use that. The 5% default this tool ships with is a stabilised-market assumption — adjust for your actual local conditions.

Common mistakes

• Forgetting to impute management. A self-managed landlord who books zero management cost is overstating NOI by 8–10% of EGI compared to an investor who'd hire a manager. When you sell, the next buyer will assume managed costs — your inflated NOI sets a price the property can't support.
• Mixing CapEx into opex. Putting on a new roof is not a $12,000 repair expense — it's a capital improvement that depreciates over its useful life. Roll the annual share into your reserves line, but don't expense the lump sum.
• Using owner-paid mortgage as an expense. NOI is by definition pre-financing. Subtract debt service from NOI to get cash flow before tax — but that's a separate line, not part of NOI.
• No reserves. Buildings consume themselves. Setting reserves to zero produces a flattering NOI today and a horrified spreadsheet in year 8 when the boiler fails.
• Stale market rent. "Gross potential rent" should be current achievable market rent, not what the current tenant happens to pay (which may be below market on a long lease). If the in-place rent is below market, model both.

How investors use NOI

• Pricing an offer. Decide your required cap rate for the asset class and location, then offer NOI ÷ required cap rate. Example: $24,000 NOI on a property where 6% caps trade → offer ~$400,000.
• Lender qualifying. Commercial lenders want DSCR ≥ 1.20–1.25 (NOI ÷ annual debt service). They'll size the loan to that constraint, then derive the LTV.
• Year-over-year operations. Watch the expense ratio (opex ÷ EGI). A creep from 38% to 48% over three years is a signal of deferred maintenance catching up.

Pairs with

• cap-rate — the next step: NOI ÷ price = cap rate.
• rental-yield — gross-yield variant, simpler but less rigorous than NOI/cap-rate.
• mortgage-affordability-calculator — once you know NOI, size the loan against DSCR.
• roi-calculator — extend NOI by adding back debt service and tax to model cash-on-cash and total return.