Net Operating Income Calculator Formula

Understand the math behind the net operating income calculator. Each variable explained with a worked example.

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Formulas Used

Net Operating Income

noi = egi - total_expenses

Effective Gross Income

effective_gross = egi

Total Operating Expenses

total_operating_expenses = total_expenses

Operating Expense Ratio

expense_ratio = (total_expenses / egi) * 100

Variables

VariableDescriptionDefault
gross_rental_incomeGross Rental Income(USD)72000
other_incomeOther Income(USD)3600
vacancy_pctVacancy & Credit Loss(%)7
property_taxesProperty Taxes(USD)6000
insuranceInsurance(USD)2400
maintenanceRepairs & Maintenance(USD)4800
management_feeManagement Fees(USD)5040
other_expensesOther Expenses(USD)2400
gross_potentialDerived value= gross_rental_income + other_incomecalculated
vacancy_lossDerived value= gross_potential * vacancy_pct / 100calculated
egiDerived value= gross_potential - vacancy_losscalculated
total_expensesDerived value= property_taxes + insurance + maintenance + management_fee + other_expensescalculated

How It Works

Net Operating Income (NOI)

NOI is the most important metric in commercial real estate. It represents the income a property generates after all operating costs but before debt service and income taxes.

Formula

NOI = Effective Gross Income - Total Operating Expenses

Where:

  • Effective Gross Income = Gross Potential Income - Vacancy Loss
  • Operating Expenses include taxes, insurance, maintenance, management, utilities
  • Debt service (mortgage payments) is NOT included in operating expenses

    • Worked Example

    A rental property earns $72,000 gross rent plus $3,600 other income, with 7% vacancy and $20,640 total expenses.

    gross_rental_income = 72000other_income = 3600vacancy_pct = 7property_taxes = 6000insurance = 2400maintenance = 4800management_fee = 5040other_expenses = 2400
    1. 01Gross potential income: $72,000 + $3,600 = $75,600
    2. 02Vacancy loss: $75,600 x 7% = $5,292
    3. 03Effective gross income: $75,600 - $5,292 = $70,308
    4. 04Total expenses: $6,000 + $2,400 + $4,800 + $5,040 + $2,400 = $20,640
    5. 05NOI: $70,308 - $20,640 = $49,668
    6. 06Expense ratio: $20,640 / $70,308 = 29.4%

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