What is the formula for net operating income?
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.
What is other income in an NOI calculation?
Other income is recurring property-level income that is not base rent. Depending on the property type, that may include parking, storage, laundry, pet fees, vending, signage, utility reimbursements, or other stable operating income streams tied to the property. It should not be used as a catch-all for speculative one-time proceeds or owner-side income that would not normally appear in a property operating statement.
Should vacancy be applied to gross scheduled rent or collected rent?
Vacancy is normally applied to scheduled rent because it is meant to reduce the rent you hoped to collect down to the rent you realistically expect to collect. In other words, the vacancy assumption is part of the bridge from gross potential rent to effective rental income. If you already start from actual collected rent, applying a second vacancy haircut can double-count the loss unless you are deliberately rebuilding the underwriting from potential rent.
Is NOI a monthly number or an annual number?
It can be shown either way as long as every input is on the same period basis. Most valuation and lending work ultimately annualizes NOI because cap rate and many underwriting standards are stated on an annual basis. A monthly view is still useful operationally, especially when you are working from rent rolls or owner statements that are maintained month by month. The important thing is consistency across income, vacancy, expenses, and any follow-on ratios.
How is NOI different from cash flow?
NOI is an operating metric, while cash flow is a broader owner-level outcome. Cash flow often continues beyond NOI by subtracting debt service, reserve funding, capital expenditures, owner draws, or taxes. That means a property can have positive NOI but weak or even negative cash flow once financing and capital needs are added. Investors often need both views: NOI for property performance and cash flow for ownership reality.
Should I use actual trailing numbers or projected numbers for NOI?
Both can be useful, but they answer different questions. Trailing actual NOI tells you what the property recently produced. Pro forma NOI tells you what the property might produce if rents, occupancy, or expenses move toward your underwriting assumptions. Many investors compare both because a large gap between trailing and projected NOI is often where underwriting optimism hides.
Can this calculator replace a lender's underwriting model?
No. This page is a screening tool, not a lender decision engine. Real underwriting may normalize expenses, apply different vacancy assumptions, add reserves, exclude some income lines, or stress the financing side separately. Use the calculator to make the income bridge transparent, then compare the result with the lender's own definition before relying on it for an acquisition, refinance, or credit decision.
