How do you calculate net operating income?

Start with gross potential rent, subtract vacancy and credit loss, add other income, then subtract operating expenses. Debt service, capital spending and income taxes stay out.

Does NOI include the mortgage payment?

No. Debt service sits below NOI, which keeps NOI the same whoever owns the property and however it is financed.

Does NOI include capital expenditures?

Usually not. Replacements and major works sit below the line, though statements vary, especially for replacement reserves.

NOI is a dollar figure, so it only means something relative to the price or the loan. Use it to work out a cap rate, a DSCR or a debt yield.

Free tool and guide

Net operating income the formula, and a calculator

NOI is the number most of commercial real estate rests on: cap rates, loan sizes and values all start from it. Enter income and expenses below to calculate it line by line.

Use the NOI calculator Read the guide

Net operating income, or NOI, is a property's income minus its operating expenses, before debt service, capital expenditures and income taxes. It measures what the property itself earns, whoever owns it and however it is financed.

NOI calculator

Enter rent, vacancy, other income and expense lines to get effective gross income, NOI and the expense ratio. It runs in your browser: your numbers are not uploaded, saved or tracked, and there is no sign-up.

Showing invented example numbers

Effective gross income: $850,000; Rent less vacancy, plus other income
Operating expenses: $333,000
Net operating income: $517,000
Expense ratio: 39.2%; Expenses divided by income
Cap rate: n/a; Enter a price

Arithmetic only, with no market benchmarks. This is not a loan quote or advice.

The NOI formula

NOI = effective gross income - operating expenses. Effective gross income is gross potential rent, less vacancy and credit loss, plus other income.

In NOI	Usually not in NOI
Rent, parking, laundry and fees	Debt service (principal and interest)
Vacancy and credit loss, as deductions	Capital expenditures
Taxes, insurance and utilities	Depreciation and amortization
Management, payroll and repairs	Income taxes
Marketing and administration	Tenant improvements and leasing commissions, in most commercial statements

Replacement reserves are the common gray area: some sponsors and lenders deduct them above NOI, and others below. Check which way any figure was built.

A worked example

Take $875,000 of gross potential rent, 6% vacancy and credit loss, and $27,500 of other income. Effective gross income is $850,000. Operating expenses of $333,000 leave NOI of $517,000, an expense ratio of 39.2%.

NOI is not cash flow

Cash flow is what is left after debt service and capital spending. Two owners of one property have the same NOI and very different cash flow if one has a large loan and the other none. That is the point of NOI: it lets you compare properties without comparing their owners.

How NOI gets flattered

Repairs called capital. Moving a repair below the line raises NOI, and so the implied value. Ask for the capital ledger.
No management fee. An owner-managed property may show none, but you would pay for that work.
Stale taxes. A buyer's tax bill can differ from the seller's after reassessment.
One-off income. A termination fee or insurance payout is not repeatable income.
Vacancy left out. A pro forma at full occupancy overstates what the property will collect.

To test a real statement, paste it into the T12 analyzer, which totals it month by month and flags what does not add up.

Frequently asked

How do you calculate net operating income?: Start with gross potential rent, subtract vacancy and credit loss, add other income, then subtract operating expenses. Debt service, capital spending and income taxes stay out.
Does NOI include the mortgage payment?: No. Debt service sits below NOI, which keeps NOI the same whoever owns the property and however it is financed.
Does NOI include capital expenditures?: Usually not. Replacements and major works sit below the line, though statements vary, especially for replacement reserves.
What is a good NOI?: NOI is a dollar figure, so it only means something relative to the price or the loan. Use it to work out a cap rate, a DSCR or a debt yield.

Pacific Software Ventures built this tool and guide, and sells AI consulting and training to commercial real estate firms. This is general education, not investment, legal or tax advice.

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