How to Calculate NOI (Net Operating Income)

Net Operating Income (NOI) is the income a commercial property generates after operating expenses — before debt service, taxes, depreciation, and capital expenditures. It's the foundation of every CRE valuation and the numerator in the cap rate formula.

The NOI Formula

Or equivalently:

Where Effective Gross Income = Gross Rent × (1 − Vacancy Rate) + Other Income (parking, laundry, late fees).

What's Included and What Isn't

Worked Example

NOI vs. Net Income

NOI excludes debt service. Two investors buying the same building with different down payments will have the same NOI — but different net income after paying their mortgages. This is intentional: NOI lets you evaluate a property independent of how it's financed, which makes it useful for valuation and comparison.

Net income (also called cash flow before taxes) = NOI − Annual Debt Service. That's what flows into your pocket after the bank gets paid.

Why NOI Matters

• Valuation: Property Value = NOI / Cap Rate. A 10% increase in NOI on a 6% cap building increases value by ~17%.
• Underwriting: Lenders use NOI to calculate DSCR — the ratio that determines if a property can support its debt.
• Operations: Tracking NOI over time shows whether a property is improving or deteriorating operationally.

Related Guides

Cap Rate GuideThe essential yield metric for comparing income properties. Market Cap RatesCurrent cap rate ranges for 25 US metros by property type. DSCR GuideMeasure how comfortably a property covers its debt payments. Cash-on-Cash GuideYour actual annual cash yield relative to cash invested. CRE CalculatorsInteractive cap rate, NOI, DSCR, and cash-on-cash calculators. Due Diligence Checklist50+ items to verify before closing — financials, physical inspection, legal, and market. 1031 Exchange CalculatorEstimate tax deferred and additional purchasing power from a like-kind exchange.