NOI calculator
Two subtractions: rent less vacancy plus other income, then less operating expenses. The arithmetic is not the hard part. Which expenses belong above the line, and what a lender puts back when the seller left it out, is where a deal changes price. This page does both, and prints a statement you can send instead of a number you have to defend.
The statement, line by line
This is the artifact worth sending. Every figure below is one subtraction from the one above it, so the other side of a negotiation can check the number they disagree with instead of arguing about the total.
| Line | Amount | Per unit |
|---|---|---|
| Gross potential rent | $1,000,000 | $25,000 |
| Vacancy and credit loss | ($50,000) | ($1,250) |
| Other income | $50,000 | $1,250 |
| Effective gross income | $1,000,000 | $25,000 |
| Real estate taxes | ($150,000) | ($3,750) |
| Insurance | ($40,000) | ($1,000) |
| Utilities | ($65,000) | ($1,625) |
| Repairs and maintenance | ($70,000) | ($1,750) |
| Other operating expenses | ($35,000) | ($875) |
| Management fee | ($30,000) | ($750) |
| Replacement reserves | ($10,000) | ($250) |
| Total operating expenses | ($400,000) | ($10,000) |
| Net operating income | $600,000 | $15,000 |
Expense ratio 40.0% with reserves above the line, 39.0% without. A quoted ratio that does not say which convention it used is two different numbers wearing one label.
NOI excludes debt service, income taxes, depreciation and capital expenditure by definition, so none of them is an input here. A lender or an appraiser will usually rebuild this statement with its own vacancy factor, a market management fee whether or not one is paid, and reserves deducted above the line. That rebuild is the single most common reason a broker NOI and an underwritten NOI disagree on the same building.
Typing a clean expense stack is the easy version of this. The real work is building it from a rent roll and a twelve-month operating statement: pulling out the one-time items, reassessing taxes for a sale, imputing a management fee the seller never paid, and doing it for every year of the hold. Altyst reads the documents and builds all of it.
Two subtractions, in order
Net operating income is effective gross income less operating expenses, and effective gross income is gross potential rent less vacancy and credit loss, plus other income. Everything difficult about the calculation is a question of which line goes where. NOI is measured before debt service, income taxes, depreciation and capital expenditure, and that exclusion is the whole point of the measure: two buyers with different loans, different tax positions and different depreciation schedules should compute the same NOI on the same building. The moment something below the line creeps above it, the comparability that makes NOI useful is gone.
The order matters more than it looks. Vacancy comes off rent, and other income is added afterwards, because parking, storage, fees and utility reimbursements do not empty out at the same rate apartments do. Then the management fee is charged against what is left, because a management contract is a percentage of collected revenue rather than of scheduled rent. Two people applying the same percentages in a different order get different answers on identical inputs, and the difference is not small.
A worked example
Take the figures the calculator loads with, the same property the other tools on this site open on. Gross potential rent of $1,000,000 across 40 units, 5% vacancy and credit loss, and $50,000 of other income leaves $1,000,000 of effective gross income. The two figures match because the other income here happens to be exactly the size of the vacancy deduction, which is a coincidence of round defaults rather than a rule; move either one and they separate. Operating expenses of $400,000, made up of $150,000 of taxes, $40,000 of insurance, $65,000 of utilities, $70,000 of repairs, $35,000 of everything else, a 3% management fee of $30,000 and $10,000 of reserves at $250 a unit, leave $600,000 of net operating income. That is a 40.0% expense ratio, $15,000 of NOI per unit and $15.00 per square foot across 40,000 feet. Against a $10,000,000 price it is a 6.0% going-in cap rate, which is the figure the cap rate calculator opens on, and it covers a $480,000 payment at exactly 1.25x.
- The management fee follows collections, not scheduled rent. Three percent of the $1,000,000 of effective gross income is $30,000. The two bases happen to agree on this deal; on the 220-unit property worked through in the glossary they do not, where the same 3% is $141,834 against effective gross income and $146,124 against gross potential rent. The dollars in that gap are small. The habit of not checking which base a formula points at is what breaks a model when the same mistake lands on a bigger line.
- The reserve line moves the price by more than it costs. Ten thousand dollars a year of reserves, capitalized at 6.0%, is $166,667 of value. Whether that line sits above or below the NOI line is a price negotiation wearing the clothes of an accounting preference.
- The expense ratio reads 40.0% with reserves and 39.0% without. A quoted ratio that does not say which convention produced it is two different numbers sharing one label, which is why this page prints both.
Why a broker NOI and an underwritten NOI disagree
Almost always for reasons that are defensible on both sides. A seller reports what the property did: no management fee if the owner self-manages, no reserves because convention puts them below the line, the current tax bill because that is the bill that was paid, and every dollar of income that arrived including the one-time ones. A lender underwrites what a buyer will face: a market management fee whether or not one was paid, reserves deducted above the line, taxes reassessed for the sale where the jurisdiction reassesses on transfer, a vacancy factor applied even to a fully occupied rent roll, and one-time income stripped out.
Five to ten percent between the two numbers is ordinary on identical operations. It matters because the gap does not stay in the income statement: the purchase price gets negotiated against the higher number and the loan gets sized against the lower one, and the difference turns up as a funding shortfall at closing rather than as a modeling error, because nothing in the model was arithmetically wrong. Run both. Size the equity against the lender's version. The method for building either one from the documents is written out in how to calculate NOI.
Which expenses go above the line
Above: real estate taxes, insurance, utilities the owner pays, repairs and maintenance, contract services, payroll, the management fee, general and administrative, marketing and licences. Below: debt service, income taxes, depreciation and amortization, partnership and asset management fees, capital improvements, tenant improvements and leasing commissions. The genuinely contested item is replacement reserves, and the contest is a convention fight rather than a factual one, which is why the calculator gives it its own field and reports the answer both ways. The formal boundary, with the reasoning, is in the capital expenditure versus operating expense entry.
One trap worth naming: utility reimbursements. If residents are billed back for water and sewer, that money is other income, and the gross utility cost stays in expenses. Netting the recovery against the cost understates both sides of the statement, makes the expense ratio look better than it is, and hides a revenue line that behaves completely differently from rent.
What NOI cannot tell you
It says nothing about the return, because it stops before the loan. The same NOI produces a comfortable deal at one coupon and a cash-negative one at another, which is what the cash-on-cash calculator shows. It says nothing about safety either, until it is put over a payment: that is the DSCR calculator, and the occupancy at which the coverage runs out is the break-even occupancy calculator. And a single year of NOI is not a hold. Capital expenditure sits below the line by definition, so a building with a roof to replace and one without produce the same NOI and very different outcomes.
What this page does not do
It does not read your operating statement. Normalizing a T-12 means finding the one-time items, annualizing partial-year lines, separating recurring repairs from capital work, and reassessing taxes for a sale, and none of that can be done from four typed numbers; the method is written out in what is a T-12. It does not know your market's expense ratios. And it is not advice: it is arithmetic on the figures you typed, stated with the conventions it uses, and nothing more.
Questions
What is the formula for NOI?
Net operating income equals effective gross income minus operating expenses. Effective gross income is gross potential rent less vacancy and credit loss, plus other income. Operating expenses are real estate taxes, insurance, utilities, repairs and maintenance, contract services, payroll, the management fee, general and administrative and marketing. NOI is measured before debt service, income taxes, depreciation and capital expenditure.
What is not included in NOI?
Four things, and they are excluded by definition rather than by convenience. Debt service is out, which is what makes NOI comparable between two buyers with different loans. Income taxes are out, because they depend on the owner and not on the building. Depreciation is out, because it is an accounting entry rather than a cash cost. Capital expenditure, tenant improvements and leasing commissions are out, because they are investments in the asset. Partnership and asset management fees are also below the line.
Why is the broker's NOI higher than the lender's?
Usually for two reasons that are both defensible and both worth thousands of dollars of value per year of income. The first is the management fee: an owner who self-manages reports no fee, while a lender imputes a market fee of roughly three to five percent of effective gross income because a buyer will have to pay one. The second is replacement reserves: US reporting convention puts them below the NOI line, and appraisers and lenders almost always deduct them above it. Add a vacancy factor applied to a fully occupied rent roll, taxes reassessed for the sale, and one-time income stripped out, and a five to ten percent gap on identical operations is ordinary.
Are replacement reserves deducted before NOI?
It depends who is asking, which is why this page reports the number both ways. Reported NOI on an operating statement usually excludes reserves. Lenders and appraisers usually deduct them above the line, which lowers NOI, lowers the loan a coverage test allows, and lowers the value a cap rate produces. Neither convention is wrong. Quoting a figure without saying which one it used is.
Should the management fee be a percentage of rent or of collections?
Of collections, which is effective gross income. Management contracts are almost always written as a percentage of revenue actually collected, so charging the fee against gross potential rent overstates it by the whole vacancy deduction, and charging it against net operating income understates it badly. This calculator charges it against EGI and shows the dollars, so the base is never in doubt.
Is vacancy deducted from other income too?
Not here, and the reason is that the two do not empty out together. Vacancy and credit loss come off gross potential rent; other income is added afterwards. Parking, storage, pet and application fees and utility reimbursements move with turnover and demand rather than one for one with occupancy, and some of them rise when occupancy falls. If a specific line of other income really does scale with occupancy, the honest treatment is to reduce that line, not to widen the vacancy deduction.
What is a good operating expense ratio?
It is a test rather than a target, and the ranges shift with the lease structure more than with anything else. Multifamily commonly runs 35 to 45 percent of effective gross income because the landlord carries most costs. Net-leased industrial and retail can run below 20 percent because the tenant pays the recoverable expenses directly. Gross-leased office sits in between and depends on the base year. Comparing across those categories tells you nothing, and solving an expense budget backwards from a ratio produces a model that looks right and is attached to nothing.
Can NOI be negative?
Yes, and this calculator reports it rather than refusing to. A property in lease-up, or one carrying a tax and insurance load its current rents cannot cover, produces negative net operating income. It is a fact about the asset, not an input error, and hiding it behind a validation message would be the dishonest choice.
Can I put this calculator on my own website?
Yes, and it takes one line of HTML. There is no account and no key to request, so nothing can expire and break your page a year from now. The framed version loads no advertising script, ours or anyone else's, and sets no cookie on your readers. Keep the credit line under it and it is yours to use, including on a commercial site. The code is on the embed page.
Do you store what I type?
Not the figures. The math runs in your browser, nothing you type is sent to us, and there is no account or email field. Your scenario is written into the page address so you can bookmark it or send it to a partner, which does mean a link you share carries your figures with it. The page does carry the site's normal cookies, which the cookie notice lists; the embeddable version carries none.
The hard part is the statement, not the subtraction
Altyst reads the offering memorandum, the rent roll and the twelve-month operating statement, normalizes the expenses, imputes the fees a buyer will actually pay, and builds this line by line for every year of the hold.