Vacancy & Operating Expense NOI Calculator
Build a rental property’s net operating income from gross rent, a vacancy allowance and operating expenses — the foundation of any valuation.
How it works
Effective gross income = gross rent − vacancy loss + other income · NOI = EGI − operating expenses · Expense ratio = opex ÷ EGI
Net operating income is the profit a property throws off from operations, and it is the number every valuation depends on. Start with the full scheduled rent, subtract a realistic vacancy and credit-loss allowance so you are not counting rent no tenant pays, add ancillary income, then subtract operating expenses — taxes, insurance, management, repairs. Crucially, NOI excludes the mortgage and income tax, because it measures the asset itself, not how you financed it.
Worked example
A building scheduled at $60,000 with a 5% vacancy allowance loses $3,000, so effective gross income is $57,000 plus $2,000 of other income = $59,000. Subtract $18,000 of operating expenses and NOI is $41,000 — an operating expense ratio of about 30.5%.
Frequently asked questions
Does NOI include the mortgage payment?
No. NOI deliberately excludes debt service and income tax so it reflects the property’s own earning power, independent of how any particular buyer finances it. Subtracting the mortgage from NOI gives cash flow before tax.
Why subtract a vacancy allowance if the building is full?
Because no property stays 100% occupied forever — tenants turn over and some rent goes uncollected. A vacancy and credit-loss allowance of a few percent keeps NOI realistic and protects you from overpaying on paper-perfect numbers.
What is a normal operating expense ratio?
For many residential rentals it runs 35–50% of effective gross income, varying with property age, taxes and whether the owner or tenant pays utilities. A suspiciously low ratio usually means an expense was left out.
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Educational estimate, not financial, tax or lending advice. Confirm figures with your lender, agent or a qualified professional.