How Do I Calculate Net Operating Income (NOI)?

Net Operating Income, or NOI, measures the income a property generates after ordinary operating expenses. It is one of the core numbers used to value commercial real estate.

The formula

NOI = Gross operating income - Operating expenses

Gross operating income includes rent and other recurring income, such as parking, laundry, or reimbursement income. Operating expenses include the costs required to run and maintain the property.

Expenses that usually count

• Property taxes
• Property insurance
• Utilities paid by the owner
• Maintenance and repairs
• Property management
• Marketing and leasing costs

Expenses that do not count

NOI is calculated before debt and taxes. Mortgage payments, depreciation, income taxes, and capital improvements are generally excluded.

For example, a property with $250,000 of annual income and $90,000 of operating expenses has an NOI of $160,000.

$250,000 - $90,000 = $160,000 NOI

Once you know NOI, you can use it with a property's value to calculate its cap rate.