How do you calculate NOI?
Start with gross potential rent, subtract vacancy and credit losses, and add other income such as parking, fees and recoveries to get effective gross income. Then subtract operating expenses: property tax, insurance, repairs and maintenance, utilities, management and payroll.
NOI = effective gross income − operating expenses. Mortgage payments, depreciation, capital improvements and income taxes are excluded, which makes NOI comparable across properties with different financing. Investors divide NOI by value to get a cap rate.
See also: Income & expense management and Dashboards & reports.
What does an NOI calculation look like?
Example (illustrative figures). Gross potential rent $1,200,000; vacancy and credit loss $60,000; other income $40,000; effective gross income $1,180,000. Operating expenses $480,000. NOI = $1,180,000 − $480,000 = $700,000.
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