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Net operating income calculator for commercial buildings
Net operating income is what a building earns from operations after its operating costs, before loan payments, depreciation and income tax. Enter your own rent, vacancy, other income and expense lines below to see NOI, and add a cap rate if you want to see how a change in a cleaning, grounds or security contract carries through to an estimated value. The sections after the calculator explain each line the way bank examiners and lenders read it.
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Net operating income, defined
NOI is a building’s income from operations minus the cost of running and maintaining it. The Office of the Comptroller of the Currency, in its Commercial Real Estate Lending booklet (Version 2.0, March 2022), defines it as annual gross income less operating expenses. Fannie Mae’s multifamily underwriting section 203.01 (Guide effective October 26, 2026) frames it as effective gross income minus operating expenses for a given period.
Gross income takes in everything the property earns from operating: rent, plus items such as parking and vending. Tenant reimbursements can sit in income when the costs being reimbursed also appear in operating expenses, which matters on office and retail leases where tenants pay back a share of common area costs.
Use the NOI calculator
Type in your gross potential rent, a vacancy and credit loss percentage, any other income and one amount per expense line. Lines tagged as service contracts, such as janitorial, security and landscaping, can be changed together in the second step: enter a cap rate and the yearly change in contract cost, and the calculator shows NOI and estimated value before and after. It also shows an operating expense ratio, which here simply means total operating expenses divided by effective gross income, the calculator’s own arithmetic with no benchmark behind it.
Every field starts empty, and the figures you enter stay in your browser. The result is arithmetic on your inputs, not an appraisal or a lender’s underwriting.
From gross potential rent to effective gross income
Effective gross income is the rent a building could collect fully leased, less an allowance for vacancy and for tenants who do not pay, plus other income. The OCC defines gross income as revenue at full occupancy before vacancy and expected credit losses, and effective gross income as what remains after applying them.
For a stabilized NOI, the OCC says the vacancy factor can be higher or lower than the building’s actual vacancy and should take account of comparable properties in the same market. Operating costs that rise and fall directly with occupancy can be adjusted to match the vacancy assumption. That is one reason a lender’s NOI for a half-empty office building can differ from the owner’s own operating statement.
What goes above the NOI line and what stays below
Operating expenses are the costs of running and normally maintaining the property. Debt service, depreciation, capital items and income taxes stay out of NOI in both the OCC’s and Fannie Mae’s treatment.
| Counted as an operating expense | Left out of NOI |
|---|---|
| Property management fee | Loan interest and principal payments |
| Real estate taxes and insurance | Depreciation and amortization |
| Utilities, water and sewer, trash removal | Income taxes |
| Repairs and maintenance, including cleaning, janitorial and cleaning supplies | Capital items such as a roof replacement |
| Common area maintenance, landscaping and grounds, parking lot upkeep, pest control | Financing fees and legal fees for securing a loan |
| Payroll, including custodians and security staff, and subcontracted labor | Owner’s draw, partnership fees and life insurance |
The left column follows the line items in Fannie Mae’s underwriting table, which is written for apartment loans but names the same service lines a commercial building carries. Fannie Mae also leaves out non-recurring, extraordinary costs and asks for stabilized figures that lease-up or a renovation has not distorted. Janitorial, day porter and grounds contracts are ordinary operating costs in these sources; none of them treats cleaning as a capital item.
For what those service lines tend to run, see our facility services cost guide.
Capital spending and the replacement reserve: lenders differ
Capital items are excluded from operating expenses, but lenders still account for the fact that roofs, HVAC systems and parking lots wear out. They do it with a replacement reserve, and the two sources place it differently.
- The OCC puts a replacement reserve inside operating expenses for underwriting, imputed whether or not the owner funds it, and gives HVAC systems, roofs and parking lots as examples of what it covers.
- Fannie Mae’s table subtracts the reserve after NOI: underwritten NOI less the replacement reserve gives underwritten net cash flow, again whether or not the reserve escrow is funded.
Neither placement is the single right one. The calculator leaves the choice to you: add a reserve as an expense line if your lender treats it that way, or leave it out and subtract it afterwards. The OCC also notes that NOI analysis may include costs that are not an immediate cash outlay, such as management fees and reserves.
A worked example with made-up figures
These are made-up round figures to show the arithmetic, not typical numbers for any building or market.
| Step | Example amount |
|---|---|
| Gross potential rent | $1,000,000 |
| Less vacancy and credit loss at 5% | -$50,000 |
| Plus other income (parking, vending) | $50,000 |
| Effective gross income | $1,000,000 |
| Less operating expenses | -$400,000 |
| Net operating income | $600,000 |
| Value at a 6% cap rate typed in for the example ($600,000 / 0.06) | $10,000,000 |
In the same example, a service contract change that lowers yearly operating costs by $12,000 lifts NOI to $612,000. Divided by the same 6% cap rate, that is $200,000 of estimated value, because each dollar of yearly NOI moves value by that dollar divided by the cap rate. This is our arithmetic from the formula, not a source’s claim. Cutting a contract can also cut service, and the condition of lobbies, restrooms and grounds affects whether tenants stay, so the arithmetic only shows how the numbers connect.
Cap rate and value
Direct capitalization divides NOI by a cap rate to estimate value. The OCC describes the cap rate, also called the overall rate, as the ratio of a property’s stabilized NOI to its sales price, and says direct capitalization suits a stabilized property with a steady income stream; a discounted cash flow suits one not yet stabilized or with swinging income.
The cap rate is not fixed. The OCC points out that rising interest rates can push cap rates up and values down with nothing changing at the property, and that cap and discount rates should reflect reasonable return expectations in normal, orderly markets. The calculator takes whatever cap rate you type and publishes none of its own; an appraiser or your lender sets the one that counts.
DSCR and debt yield in brief
Lenders turn NOI into two quick tests. The debt service coverage ratio is NOI divided by the year’s debt service and shows whether the building can carry its loan. Debt yield is NOI divided by the loan amount, stated as a percent, and measures risk without depending on the interest rate, amortization or cap rate; a lower debt yield means more leverage.
Where the loan documents carry a coverage covenant, the OCC says income and expenses should be clearly defined there, and the covenant figure may not match the one used at underwriting. Read your own loan agreement for the definition that applies.
What lenders and examiners look at around NOI
The OCC lists the factors behind an income property’s numbers and says each should be weighed under normal and stressed conditions:
- historical, current and projected rents, operating expenses and capital spending
- vacancy and absorption, lease renewal trends and past-due leases
- comparable rents, expenses and sales prices
- current lease terms
- cap and discount rates
On net leases, the OCC says NN, NNN and absolute net have no agreed definitions, so the lease itself shows which costs the landlord pays and which pass to the tenant. Statements prepared on a cash basis can mislead too: a year with unpaid property taxes understates expenses and overstates income, which is why the OCC suggests checking reported costs against comparable buildings. On the apartment side, Fannie Mae asks for best efforts to get three years of operating statements, at least the prior full year or a trailing six months annualized.
Common NOI mix-ups
- Mortgage payments are debt service, not an operating expense.
- Depreciation is a tax item and stays out of NOI.
- A new roof or HVAC unit is capital spending, handled through a reserve rather than the expense lines.
- A pro forma NOI is a projection; a trailing statement is history. Know which one a figure is.
- Cleaning, porter and landscaping contracts are operating expenses, so a change in scope shows up in NOI right away.
Get help
If you want your janitorial, porter and grounds lines under one contract with one figure to plug into the budget, request a quote. We walk each property first, then put our price in writing, and our vendor consolidation guide explains how one contract across several buildings is set up.
A few useful answers
Common questions
How do you calculate net operating income?
Start with gross potential rent, subtract vacancy and credit loss, and add other income to reach effective gross income. Then subtract operating expenses. The OCC and Fannie Mae both leave loan payments, depreciation and income taxes out.
Is janitorial service an operating expense or a capital expense?
An operating expense. Fannie Mae’s underwriting table lists cleaning, janitorial and cleaning supplies among repairs and maintenance, and the OCC defines operating expenses as the cost of running and normally maintaining the property.
Does the replacement reserve come before or after NOI?
Lenders treat it differently. The OCC includes a replacement reserve in operating expenses for underwriting, while Fannie Mae subtracts it after NOI to reach net cash flow.
How does a cleaning contract change affect property value?
At a fixed cap rate, each dollar of yearly NOI change moves estimated value by that dollar divided by the cap rate. That is arithmetic only; service levels also affect tenants and condition, and an appraiser sets the actual value.
What is the difference between NOI and cash flow?
NOI stops before debt service. Cash flow measures go further, subtracting items such as loan payments, and in Fannie Mae’s table the replacement reserve, from NOI.
What operating expense ratio is good?
No single ratio fits every building, because lease terms decide which costs the owner carries. Track the ratio the calculator shows, total operating expenses divided by effective gross income, against your building’s own past years.