NOI Calculator (Commercial) Formula

Understand the math behind the noi calculator (commercial). Each variable explained with a worked example.

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Formulas Used

Net Operating Income (NOI)

net_operating_income = noi

Effective Gross Income

effective_gross_income = effective_gross

Total Operating Expenses

total_operating_expenses = total_opex

Operating Expense Ratio

operating_expense_ratio = effective_gross > 0 ? (total_opex / effective_gross) * 100 : 0

Monthly NOI

monthly_noi = noi / 12

Vacancy Loss Amount

vacancy_dollar = vacancy_loss

Variables

VariableDescriptionDefault
gross_rental_incomeAnnual Gross Rental Income(USD)250000
other_incomeOther Income (parking, laundry, etc)(USD)15000
vacancy_loss_pctVacancy & Credit Loss(%)7
property_taxesAnnual Property Taxes(USD)28000
insuranceAnnual Insurance(USD)8000
maintenance_repairsMaintenance & Repairs(USD)15000
management_feeManagement Fee(USD)18000
utilitiesUtilities (if owner-paid)(USD)12000
other_expensesOther Operating Expenses(USD)5000
potential_grossDerived value= gross_rental_income + other_incomecalculated
vacancy_lossDerived value= potential_gross * vacancy_loss_pct / 100calculated
effective_grossDerived value= potential_gross - vacancy_losscalculated
total_opexDerived value= property_taxes + insurance + maintenance_repairs + management_fee + utilities + other_expensescalculated
noiDerived value= effective_gross - total_opexcalculated

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:

  • Effective Gross Income = Potential Gross Income - Vacancy & Credit Loss
  • Operating Expenses = Taxes + Insurance + Maintenance + Management + Utilities + Other

    • What NOI Excludes

  • Debt service (mortgage payments)
  • Capital expenditures (roof replacement, HVAC, etc.)
  • Depreciation and amortization
  • Income taxes

    • Operating Expense Benchmarks

  • Office: 40-55% of EGI
  • Retail (NNN): 10-20% (tenants pay most expenses)
  • Industrial: 20-35%
  • Multifamily: 35-50%

    • 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.

    gross_rental_income = 250000other_income = 15000vacancy_loss_pct = 7property_taxes = 28000insurance = 8000maintenance_repairs = 15000management_fee = 18000utilities = 12000other_expenses = 5000
    1. 01Potential gross income: $250,000 + $15,000 = $265,000
    2. 02Vacancy loss: $265,000 x 7% = $18,550
    3. 03Effective gross income: $265,000 - $18,550 = $246,450
    4. 04Total expenses: $28,000 + $8,000 + $15,000 + $18,000 + $12,000 + $5,000 = $86,000
    5. 05NOI: $246,450 - $86,000 = $160,450
    6. 06Expense ratio: $86,000 / $246,450 = 34.9%

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