Screen property income before debt service Net operating income starts with scheduled rent, adjusts for vacancy, adds any recurring other income, and subtracts operating expenses. It does not include mortgage principal, interest, income taxes, depreciation, or major capital expenditures.
Period
Examples
Management fee treatment
Display currency
Change the money formatting without changing the NOI maths.
Scope note
Use recurring property-level income and recurring operating costs only. Keep mortgage payments, owner income tax, depreciation, and one-off capital improvements out of NOI unless you are deliberately building a different underwriting definition.
Net operating income
$68,880.00
Annual NOI after a vacancy loss of $6,000.00 and total operating expenses of $51,120.00.
Total effective income
$120,000.00
Vacancy loss
$6,000.00
Management fee
$9,120.00
NOI margin
57.4%
NOI is positive before debt service This means effective operating income exceeds recurring property expenses. It still does not tell you whether debt service, capex, or owner-level taxes leave positive cash flow.
Income build-up
Scheduled rent is $120,000.00 and other income is $6,000.00. After 5% vacancy, effective rental income is $114,000.00 and total effective income is $120,000.00.
Underwriting checkpoints
Operating expenses absorb 42.6% of effective income, and the break-even occupancy needed to cover recurring expenses is about 37.6% of scheduled rent.
On the opposite period basis, that NOI is $5,740.00 per month.
Definition note
This worksheet uses a simple underwriting definition: collected rent plus other operating income, minus recurring operating expenses and management cost. If your lender adds reserves, replaces actual costs with market benchmarks, or excludes some other-income lines, use the lender definition for final credit work.
Net operating income calculator guide: NOI formula, vacancy, operating expenses
A net operating income calculator is most useful when it mirrors how real estate investors and lenders actually screen a property: start with scheduled rent, allow for vacancy, add recurring other income, then subtract recurring operating costs. This page keeps the calculation transparent so you can see how vacancy, management fees, and expense assumptions change NOI before debt service enters the picture.
What NOI is actually measuring
Net operating income, or NOI, is a property-level operating metric. It is meant to show what the real estate itself produces before financing and owner-level tax choices. That is why lenders, appraisers, and investors use NOI when they want to compare the income power of a building without letting one buyer's mortgage structure or tax position distort the comparison.
The practical sequence is straightforward. Start with scheduled rental income, adjust for vacancy and credit loss, add recurring other property income such as parking, laundry, pet fees, or reimbursed common-area income where appropriate, and then subtract recurring operating expenses. The result is the income left from operations before debt service, income taxes, depreciation, and capital improvements are considered.
The NOI formula this calculator uses
This calculator starts from scheduled rent and applies the vacancy rate only to rental income, not to the separate other-income line. That produces effective rental income. It then adds other operating income, subtracts operating expenses, and handles management cost either as a percentage of collected rent or as a fixed recurring cost, depending on the mode you choose.
That structure is intentionally closer to an underwriting worksheet than to a bare one-line formula. It lets you see whether a change in rent, vacancy, management, or operating expenses is doing the real work in the result instead of hiding everything inside one black-box NOI number.
Effective rental income = Scheduled rental income - (Scheduled rental income x Vacancy rate)
Reduces scheduled rent for expected vacancy and credit loss before other income is added.
Total effective income = Effective rental income + Other operating income
Adds recurring non-rent property income such as parking, laundry, or fee income.
NOI = Total effective income - Operating expenses - Management cost
Calculates property-level operating income before debt service, taxes, depreciation, and capital expenditures.
Worked example: annual NOI with vacancy and management fees
Suppose a small multifamily property has 120,000 of scheduled annual rent, 6,000 of other annual operating income, a 5% vacancy assumption, 42,000 of recurring operating expenses before management, and an 8% management fee applied to collected rent. Vacancy reduces scheduled rent by 6,000, leaving 114,000 of effective rental income. Adding the 6,000 of other income produces 120,000 of total effective income.
An 8% management fee on collected rent adds 9,120 of management cost. Total operating expenses therefore become 51,120 once the base operating expenses and management fee are combined. NOI is 68,880 because 120,000 of total effective income minus 51,120 of total operating expenses leaves 68,880 before any mortgage payment or owner-level tax is considered.
That example shows why a useful NOI worksheet should expose the bridge from gross rent to effective income to NOI. A property can look attractive on scheduled rent alone and still lose much of that appeal once realistic vacancy, management, repairs, utilities, insurance, and tax expense are layered in.
Recurring property-level expenses usually belong in NOI. Typical examples include property taxes, insurance, repairs and maintenance, utilities paid by the owner, common-area cleaning, landscaping, supplies, onsite payroll, advertising or leasing costs, and professional management. If the cost is necessary to keep the property operating and producing rent, it is usually part of the NOI conversation.
Debt service does not belong in NOI. Neither do income taxes, depreciation, amortization, and most owner-specific financing choices. Capital expenditures are also commonly kept out of NOI because replacing a roof, elevator, HVAC plant, or parking surface is a capital event rather than an ordinary recurring operating expense, even though investors may still track separate repair and replacement reserves alongside NOI for underwriting realism.
The boundary matters because NOI is often the bridge into later ratios such as cap rate and DSCR. If one analysis includes mortgage payments or capex inside NOI while another keeps them out, the numbers may look comparable but are actually measuring different things.
Fannie Mae Selling Guide — Rental Income — Official Fannie Mae guidance discussing rental-income treatment and the vacancy and maintenance haircut used in mortgage underwriting.
How investors and lenders use NOI after the first pass
Once NOI is built, it usually feeds into at least one follow-on screening ratio. Cap rate compares NOI with property value or purchase price to show the unlevered yield implied by the deal. DSCR compares NOI with annual debt service to show whether the property is generating enough income to cover required principal and interest with a cushion that satisfies the lender.
That is why a strong NOI number is helpful but never sufficient on its own. A property can have positive NOI and still fail a lending screen if debt service is too heavy, reserves are understated, or the underwriting replaces actual numbers with more conservative market assumptions. Use NOI as the operating-income foundation, then pressure-test the financing, reserve, and valuation side separately before treating the deal as investable.
The basic formula is NOI = effective gross income minus operating expenses. In practice, effective gross income usually means scheduled rent reduced for vacancy and credit loss, plus recurring other income such as parking or laundry. Operating expenses usually include recurring property-level costs such as taxes, insurance, maintenance, utilities, and management. The key point is that NOI is meant to measure the property before financing and owner-level tax choices are layered in.
What counts as operating expenses in NOI?
Typical operating expenses include property taxes, insurance, repairs and maintenance, owner-paid utilities, cleaning, landscaping, supplies, professional management, leasing or advertising costs, and onsite payroll where relevant. The common thread is that these are recurring costs needed to keep the property operating. The exact line items can still vary by lender, appraiser, or investor worksheet, which is why comparing two NOI figures only makes sense if the underlying definitions match.
Does NOI include mortgage payments or debt service?
No. Mortgage principal and interest are financing costs, not property operating costs. NOI is designed to measure the asset before debt service so that different buyers can compare the same property on a like-for-like operating basis. Once you start subtracting debt service, you are moving away from NOI and toward levered cash-flow analysis or debt-service-coverage analysis.
Does NOI include capital expenditures?
Usually no. Major roof replacements, structural work, elevator modernization, and similar capital items are generally treated separately from ordinary operating expenses because they are not routine recurring costs of daily operations. Some investors still track replacement reserves or normalized capex alongside NOI for prudence, but that is an additional underwriting layer rather than part of the core NOI definition itself.
