NOI Calculator for Cap Rate & Debt Yield

The Formula, and What It Leaves Out

Net operating income is effective gross income minus operating expenses. Effective gross income starts from potential rent at full occupancy, subtracts vacancy and credit loss, then adds the rest of what the property earns: parking, laundry, storage, pet rent, utility reimbursements.

What comes out is narrower than most owners expect. Four things never belong in NOI:

• Debt service. NOI is measured before financing. That is what lets a lender compare your building against one that carries no mortgage at all.
• Capital expenditures. A roof replacement is not an operating expense, however painful the invoice is.
• Depreciation and amortization. Non-cash, and a tax concept rather than an operating one.
• Income taxes and owner draws. These belong to the owner, not to the property.

Why This One Number Sets Your Loan

NOI is the numerator in nearly every test that decides your proceeds. Value at a given cap rate is NOI divided by that cap rate, which is how an appraiser gets to a number.

Debt yield is NOI divided by the loan balance. Coverage is NOI divided by annual debt service. A 5% swing in NOI moves the appraised value, the debt yield, and the coverage ratio all at once, which is why loan sizing conversations are really arguments about the operating statement.

Whose NOI Are We Talking About?

There is no single standard. A broker's marketing NOI, an appraiser's stabilized NOI, and an underwriter's NOI can describe the same building and still differ by six figures. The disagreements are narrow and predictable: whether a management fee is included when the owner self-manages, whether replacement reserves sit above or below the line, and whether the vacancy factor reflects the submarket or last month's rent roll.

Ask which version you are looking at before you compare two deals on it. Then push that same version through our debt yield calculator and DSCR calculator so all three tests are working from one set of numbers.

Estimates only. What counts as income and as operating expense varies by lender, program, and appraisal, and the appraisal and your loan documents control. Send the operating statement and the desk will tell you which line items an underwriter is likely to move.