CRE Tool Hub

NOI Builder

Construct a detailed Net Operating Income statement.

Income

$
$
$

Laundry, parking, pet fees, etc.

Operating Expenses

$
$
$
$
$
$
Total Expenses: $33,500

Net Operating Income

$63,500

Annual NOI

This is your property's pure operating profit before paying any debt service or income taxes.

Effective Grose Income: $97,000
Operating Expenses: ($33,500)
NOI: $63,500

Have your NOI? Find your Cap Rate.

Calculate Cap Rate →

Next Step Analysis

Determine Property Value (Cap Rate) → See how much your property is worth based on this NOI. Check Lender Viability (DSCR) → Will a bank lend on this income? Find out now.

💡 Pro Tip: Be careful not to include "Below the Line" expenses in your NOI. Mortgage payments (Principal & Interest), Capital Expenditures (replacing a roof), and Depreciation should NEVER be subtracted from NOI.

Why Net Operating Income (NOI) is King

Net Operating Income (NOI) is arguably the most important metric in commercial real estate. It represents the actual income your property generates from its operations, independent of how you financed it (mortgage) or how you report it for taxes (depreciation).

NOI is the "true north" for valuing a property. It is the numerator in the Cap Rate formula (NOI / Price) and the Debt Service Coverage Ratio formula (NOI / Debt Service). Without an accurate NOI, you cannot correctly value a property or know if it qualifies for a loan.

NOI vs. Net Cash Flow

It is crucial to distinguish between NOI and Cash Flow (or Net Income). NOI does not account for your mortgage payment. Net Cash Flow does.

  • NOI: Income - Operating Expenses. (Used for Valuation)
  • Net Cash Flow: NOI - Debt Service - Capital Expenditures. (Used for "money in your pocket")

Frequently Asked Questions

What is NOI in real estate?
NOI (Net Operating Income) is the annual income a property generates after deducting all operating expenses, but before deducting debt service and income taxes. It's calculated as: NOI = Gross Income - Operating Expenses. NOI is the foundation of commercial real estate valuation and is used to calculate cap rate, debt service coverage ratio, and other key metrics.
How do you calculate NOI?
To calculate NOI: 1) Start with Potential Gross Income (total possible rental income). 2) Subtract vacancy and credit loss to get Effective Gross Income. 3) Add other income (parking, laundry, storage). 4) Subtract all operating expenses (property taxes, insurance, maintenance, utilities, property management). Formula: NOI = Effective Gross Income + Other Income - Operating Expenses.
What expenses are included in NOI?
Operating expenses included in NOI calculation: property taxes, insurance, repairs and maintenance, utilities, property management fees, landscaping, snow removal, marketing/advertising, legal/accounting fees, and administrative costs. Do NOT include: mortgage payments, capital expenditures, depreciation, income taxes, or tenant improvements.
What's the difference between NOI and net income?
NOI (Net Operating Income) is the property's income after operating expenses but before debt service and taxes. Net Income is what remains after ALL expenses, including mortgage payments, capital expenditures, and income taxes. NOI measures the property's operational performance independent of financing, while net income shows actual cash flow to the owner after all obligations.
Why is NOI important?
NOI is crucial because it: 1) Measures a property's true operational performance, 2) Is used to calculate cap rate (value = NOI ÷ cap rate), 3) Determines borrowing capacity (lenders use NOI for DSCR calculations), 4) Allows comparison between properties regardless of financing, and 5) Helps identify operational improvement opportunities.