Free tool
NOI calculator
Enter a year of gross potential rent, vacancy, other income and operating expenses. Get effective gross income, net operating income and the expense ratio — no sign-up.
Updated
Annual income and expenses
Every unit leased at market rent for the full year.
Applied to rent only.
Parking, laundry, storage, fees, expense reimbursements.
Taxes, insurance, utilities, repairs, payroll, management. Not debt service or capital spending.
Net operating income
$650,000
Effective gross income
$1,170,000
Expense ratio
44.4%
Vacancy and credit loss
$60,000
For illustration, not advice. NOI = effective gross income − operating expenses, before debt service, capital expenditures, depreciation and income tax. Expense ratio = operating expenses ÷ effective gross income. Lenders and buyers adjust a seller's figures; use the same NOI definition as the cap rate or loan you compare with.
The NOI formula
Net operating income (NOI) is what a property earns from operations in a year: the income it collects minus the cost of running it. It is measured before debt service, capital expenditures, depreciation and income tax. Most operating statements build it in two steps:
- Effective gross income (EGI) = gross potential rent − vacancy and credit loss + other income
- NOI = EGI − operating expenses
- Expense ratio = operating expenses ÷ EGI
Gross potential rent is every unit leased at market rent for twelve months. Vacancy and credit loss covers empty units and rent that is billed but never collected. Other income is parking, laundry, storage, fees and, on commercial leases, expense reimbursements from tenants.
A worked example
An apartment property has $1,200,000 of gross potential rent. The underwriter assumes 5% vacancy and credit loss, $30,000 of other income and $520,000 of operating expenses.
| Line | Calculation | Amount |
|---|---|---|
| Gross potential rent | $1,200,000 | |
| Vacancy and credit loss | 5% × $1,200,000 | −$60,000 |
| Other income | $30,000 | |
| Effective gross income | $1,200,000 − $60,000 + $30,000 | $1,170,000 |
| Operating expenses | −$520,000 | |
| Net operating income | $1,170,000 − $520,000 | $650,000 |
| Expense ratio | $520,000 ÷ $1,170,000 | 44.4% |
That NOI is the starting point for the rest of the deal. At a 6.5% cap rate it implies a value of $650,000 ÷ 0.065 = $10,000,000 — try it in the cap rate calculator. Against $500,000 of annual debt service it gives a DSCR of 1.30x — test the loan in the DSCR calculator.
What counts as an operating expense
Operating expenses are the costs of running the property in an ordinary year: property taxes, insurance, utilities the owner pays, repairs and maintenance, payroll, property management, and administration and marketing. These stay out of NOI:
- Mortgage principal and interest — they depend on the owner’s financing, not the building.
- Capital expenditures such as roofs, HVAC replacements and unit renovations.
- Depreciation and amortization, which are not cash.
- The owner’s income taxes and fund-level costs such as a sponsor’s asset management fee.
Replacement reserves are the grey area: some lenders deduct them above NOI, others below. Say which you used whenever you quote the number.
Common mistakes
- Taking a seller’s NOI with no management fee because the owner self-manages. A buyer will pay one.
- Using today’s property taxes when the sale will trigger a reassessment.
- Leaving one-time income — an insurance payout, a lease termination fee — in a trailing figure.
- Using an optimistic vacancy rate. The break-even occupancy calculator shows how far occupancy can fall before the property stops covering its bills.
From a calculator to a deal
In CREAssets the underwriting workbook carries the rent roll and T-12 into income and expense sheets that roll up to NOI, a cash-flow model and a sale. On the free stage you fill the workbook by hand; AI parsing of the OM, rent roll and T-12 is on the Platform plan. After closing, each deal keeps its own books with a P&L per deal and asset. See AI underwriting and accounting.
Related calculators
- Cap rate calculator
Enter any two of NOI, value and cap rate to get the third, with the value at nearby cap rates.
- DSCR and loan sizing calculator
From NOI, loan amount, rate and amortization: debt service, DSCR, debt yield and the maximum loan at your minimum DSCR.
- Break-even occupancy calculator
Operating expenses plus debt service over gross potential income — and the cushion against today’s occupancy.
- Gross rent multiplier (GRM) calculator
Price over gross annual rent, or the price a GRM implies — a quick screen before you underwrite NOI.
NOI calculator questions
How do you calculate NOI?
Start with gross potential rent, subtract vacancy and credit loss, add other income to get effective gross income (EGI), then subtract operating expenses. $1,200,000 of rent with 5% vacancy, $30,000 of other income and $520,000 of expenses gives $1,170,000 of EGI and $650,000 of NOI.
Does NOI include the mortgage payment?
No. NOI is measured before debt service, capital expenditures, depreciation and income tax, so it is the same whoever owns the building and however it is financed. Subtract debt service from NOI to see cash flow, and divide NOI by debt service for DSCR.
What is the expense ratio?
Operating expenses divided by effective gross income. In the example, $520,000 ÷ $1,170,000 = 44.4%. It is a quick check on a seller’s numbers: an expense ratio far below similar properties often means a missing management fee, low taxes or deferred repairs.
Should the vacancy rate apply to other income?
This calculator applies vacancy and credit loss to rent only and adds other income in full. Some underwriters apply a vacancy factor to other income too, or treat parking and laundry income as varying with occupancy. Use the convention of the statement or lender you are comparing with.
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