Net Operating Income (NOI) Calculator

How to Calculate Net Operating Income (NOI)

Net Operating Income (NOI) is a crucial metric in real estate investment that measures a property's potential profitability before accounting for financing costs and taxes. This guide will walk you through the process of calculating and interpreting NOI.

Net Operating Income Formula

The formula to calculate Net Operating Income is:

$$NOI = (GrossRentalIncome + OtherIncome - VacancyLoss) - OperatingExpenses$$

Where:

• $$GrossRentalIncome$$ is the total rental income before any deductions
• $$OtherIncome$$ is additional income from sources like parking fees or vending machines
• $$VacancyLoss$$ is the income lost due to unoccupied units
• $$OperatingExpenses$$ are the costs associated with running the property

Calculation Steps

1. Calculate the Gross Rental Income
2. Add any Other Income
3. Subtract the Vacancy Loss
4. Calculate the Effective Gross Income (EGI)
5. Subtract Operating Expenses
6. The result is the Net Operating Income (NOI)

Example Calculation

Let's calculate the NOI for a property with the following details:

• Gross Rental Income: $100,000
• Other Income: $5,000
• Vacancy Loss: $3,000
• Operating Expenses: $40,000

Step 1: Calculate Effective Gross Income (EGI)

$$EGI = GrossRentalIncome + OtherIncome - VacancyLoss$$

$$EGI = 100,000 + 5,000 - 3,000 = 102,000$$

Step 2: Calculate Net Operating Income (NOI)

$$NOI = EGI - OperatingExpenses$$

$$NOI = 102,000 - 40,000 = 62,000$$

Step 3: Interpret the Result

The Net Operating Income (NOI) for this property is $62,000. This means that after accounting for all operating revenues and expenses, but before considering financing costs and taxes, the property generates $62,000 in annual income.

Visual Representation

This bar chart illustrates the components of NOI calculation in our example, visually representing how each factor contributes to the final Net Operating Income figure.