NOI Calculator (Commercial) Formula
Understand the math behind the noi calculator (commercial). Each variable explained with a worked example.
Formulas Used
Net Operating Income (NOI)
net_operating_income = noiEffective Gross Income
effective_gross_income = effective_grossTotal Operating Expenses
total_operating_expenses = total_opexOperating Expense Ratio
operating_expense_ratio = effective_gross > 0 ? (total_opex / effective_gross) * 100 : 0Monthly NOI
monthly_noi = noi / 12Vacancy Loss Amount
vacancy_dollar = vacancy_lossVariables
| Variable | Description | Default |
|---|---|---|
gross_rental_income | Annual Gross Rental Income(USD) | 250000 |
other_income | Other Income (parking, laundry, etc)(USD) | 15000 |
vacancy_loss_pct | Vacancy & Credit Loss(%) | 7 |
property_taxes | Annual Property Taxes(USD) | 28000 |
insurance | Annual Insurance(USD) | 8000 |
maintenance_repairs | Maintenance & Repairs(USD) | 15000 |
management_fee | Management Fee(USD) | 18000 |
utilities | Utilities (if owner-paid)(USD) | 12000 |
other_expenses | Other Operating Expenses(USD) | 5000 |
potential_gross | Derived value= gross_rental_income + other_income | calculated |
vacancy_loss | Derived value= potential_gross * vacancy_loss_pct / 100 | calculated |
effective_gross | Derived value= potential_gross - vacancy_loss | calculated |
total_opex | Derived value= property_taxes + insurance + maintenance_repairs + management_fee + utilities + other_expenses | calculated |
noi | Derived value= effective_gross - total_opex | calculated |
How It Works
Commercial NOI Calculation
Net Operating Income is the most important metric in commercial real estate. It measures a property's income-producing ability before debt service and capital expenditures.
Standard NOI Formula
NOI = Effective Gross Income - Operating Expenses
Where:
What NOI Excludes
Operating Expense Benchmarks
Lower expense ratios mean more income flows to NOI, which directly increases property value.
Worked Example
$250,000 gross rental income, $15,000 other income, 7% vacancy, $28,000 taxes, $8,000 insurance, $15,000 maintenance, $18,000 management, $12,000 utilities, $5,000 other.
- 01Potential gross income: $250,000 + $15,000 = $265,000
- 02Vacancy loss: $265,000 x 7% = $18,550
- 03Effective gross income: $265,000 - $18,550 = $246,450
- 04Total expenses: $28,000 + $8,000 + $15,000 + $18,000 + $12,000 + $5,000 = $86,000
- 05NOI: $246,450 - $86,000 = $160,450
- 06Expense ratio: $86,000 / $246,450 = 34.9%
Frequently Asked Questions
Why does NOI exclude debt service?
NOI measures the property's performance independent of how it is financed. Two investors may buy the same property with different loan amounts and interest rates. By excluding debt service, NOI allows apples-to-apples comparison of property performance.
What is the difference between NOI and cash flow?
Cash flow equals NOI minus debt service (mortgage payments). NOI is the property-level metric, while cash flow is the investor-level metric after financing costs. Cash flow also typically subtracts capital reserves.
How do I increase NOI?
NOI increases through either raising income or reducing expenses. Income improvements include rent increases, reducing vacancy, adding revenue streams (parking, vending, storage). Expense reductions include tax appeals, energy efficiency upgrades, competitive bidding on services, and renegotiating vendor contracts.
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Open NOI Calculator (Commercial)