NOI Calculator

NOI is the annual income a property produces after operating expenses and before debt service, income taxes, depreciation and capital expenditures. It is the number every income-property metric is built on: cap rate, value, DSCR and debt yield all start from NOI.

NOI = effective gross income − operating expenses, where effective gross income is rent plus other income, less vacancy and credit loss.

• Property taxes
• Insurance
• Utilities the owner pays (water, sewer, trash, common-area electric)
• Repairs and maintenance, including turnover costs
• Property management, typically 3–10% of effective gross income
• Payroll, administrative, legal and marketing costs
• Replacement reserves, often $250–$400 per unit per year for multifamily

Reserves are a judgment call. Appraisers and lenders usually include them; some sellers' pro formas leave them out, which inflates NOI.

• Mortgage principal and interest
• Income taxes
• Depreciation and amortization
• Capital expenditures such as a new roof or HVAC (see the CapEx Impact Calculator)
• Owner-specific costs that a different owner would not carry

Keeping financing and taxes out is what makes NOI comparable between buyers with different loans and tax situations.

Expense ratio is operating expenses divided by effective gross income. Typical ranges for stabilized assets:

• Multifamily: 35–50%, higher where the owner pays utilities
• Single-tenant net lease: 0–10%, since the tenant pays most costs
• Multi-tenant retail and office: 30–45% before recoveries
• Self-storage: 30–40%

A ratio far below the norm for the asset class usually means an expense is missing from the pro forma.

Cash flow is what is left after NOI pays the mortgage and funds capital projects. Two buyers of the same building have the same NOI but different cash flows if their loans differ.

Use NOI to value the property and compare it to others. Use cash flow to judge whether the deal works for you.

• Cap rate: NOI ÷ price. Compare it to market cap rates in the Cap Rate Calculator.
• Value: NOI ÷ market cap rate, in the Property Value Calculator.
• DSCR: NOI ÷ annual debt service. Lenders usually want 1.20–1.25 or better.
• Debt yield: NOI ÷ loan amount. Many lenders want 8–10% or more.

Underwrite on trailing twelve-month actuals first, then adjust each line to what you expect under your ownership: market rent, realistic vacancy, your management fee, and reserves. Treat a seller's pro forma as a sales document, not a forecast.