NOI Calculator

Net Operating Income (NOI) is the foundation of commercial real estate valuation and underwriting. It measures how much cash a property generates from operations after paying all operating expenses but before debt service, depreciation, and income taxes. Every other key metric, including DSCR, cap rate, and debt yield, starts with NOI. Get this number wrong and the entire analysis falls apart. This calculator breaks down the full NOI calculation with line-item detail so you can see exactly where the money goes.

What Is Net Operating Income?

NOI strips out everything that is not related to the property's operating performance. It ignores how the deal is financed (no mortgage payments), how the owner handles taxes (no income tax), and how the property depreciates on paper. What remains is a clean picture of what the property actually produces from operations.

This matters because two investors can own identical properties with identical tenants and identical rents, but have completely different mortgage payments, tax situations, and depreciation schedules. NOI lets you compare properties on equal footing. It is the common denominator of commercial real estate analysis.

The NOI Formula

Each component has a specific definition that matters for accuracy.

Potential Gross Income (PGI)

This is the total rental income the property would generate if every unit were occupied and every tenant paid in full. It represents the theoretical maximum. For a 100-unit apartment building at $1,500/month per unit, PGI is $1,800,000 per year.

Vacancy and Credit Loss

No property runs at 100% occupancy and 100% collection rate indefinitely. The vacancy and credit loss factor accounts for both physical vacancy (empty units) and economic vacancy (tenants who do not pay). Most underwriters use 5% to 10% of PGI, though the right number depends on the property type, market, and current occupancy.

Lenders typically apply their own vacancy assumption even if the property is currently fully occupied. They stress-test the income to see if the deal still works under normal market conditions.

Other Income

Revenue from sources other than base rent: parking fees, laundry machines, storage unit rentals, late fees, pet fees, application fees, vending machines, antenna or cell tower leases, and similar items. These can add 2% to 5% of gross income on multifamily properties and more on some commercial assets.

Operating Expenses

Everything it costs to run the property on a day-to-day basis. The key categories are:

Worked Example

A 40-unit apartment complex charges an average of $1,250/month per unit.

With this NOI, you can immediately run the downstream calculations: divide by a cap rate to estimate value, divide by annual debt service to get DSCR, or divide by the loan amount to get debt yield.

Why NOI Matters for Every CRE Metric

NOI is the starting input for nearly every metric lenders and investors use to evaluate commercial real estate.

This is why accurate NOI calculation matters so much. An error of even 5% in NOI ripples through every other number. Overstate NOI and you overvalue the property, over-leverage the deal, and present a rosier picture to lenders than the deal deserves. Understate it and you leave money on the table.

Common NOI Mistakes

Three errors come up repeatedly in deal packages, and they are the fastest way to lose credibility with a lender.

First, including debt service in operating expenses. Mortgage payments are not operating expenses. If you deduct them above the NOI line, you are double-counting when you later calculate DSCR. Lenders catch this immediately.

Second, using actual vacancy instead of market vacancy. A property might be 100% occupied today, but lenders underwrite to a normalized vacancy factor. Presenting actual occupancy as if it will last forever signals inexperience. Show the current occupancy, then apply a reasonable vacancy factor for the pro forma.

Third, ignoring reserves for replacement. Even if the owner is not setting aside money for future capital expenditures, many lenders deduct $250 to $500 per unit (for multifamily) or a percentage of EGI from NOI during underwriting. Not including reserves makes the NOI look artificially high and can cause surprises when the lender's underwritten NOI comes back lower than expected.

How Brokers Can Use NOI Effectively

When you structure a deal package, lead with the NOI and show your work. Lenders want to see the line-item breakdown, not just a final number. A detailed NOI schedule demonstrates that you have done actual underwriting, not just plugged numbers into a spreadsheet.

Compare your NOI to the trailing-12-month financials and explain any differences. If you are projecting higher rents, show comparable market rents. If you are projecting lower expenses, explain why. Lenders respect transparency and will underwrite the deal more favorably when they trust the numbers.

Use NOI to set borrower expectations before you start shopping lenders. If the NOI supports a 1.15x DSCR at the borrower's desired loan amount, you know before the first call that you either need a different capital structure or a lender with a lower minimum DSCR threshold.

Frequently Asked Questions