Net Operating Income Calculator

Property Area (A): sq ft

Rental Rate per Sq Ft (R): USD/year

Parking Rental (OI): USD/year

Occupancy Rate (OR): %

Operating Expenses Breakdown

Property Tax (T): USD/year

Management Fees (M): USD/year

Insurance (I): USD/year

Maintenance (MN): USD/year

Repairs (RP): USD/year

Other Expenses (OE): USD/year

Potential Gross Income (PGI):

USD/year

Effective Gross Income (EGI):

USD/year

Operating Expenses (OPEX):

USD/year

Net Operating Income (NOI):

USD/year

1. What is the Net Operating Income Calculator?

Definition: This calculator computes the Net Operating Income (NOI), the annual profit from a real estate property after accounting for rental income and operating expenses, excluding debt service and capital expenditures.

Purpose: Helps property owners and investors evaluate a property’s financial performance, assess investment viability, and compare properties.

2. How Does the Calculator Work?

The calculator uses the following formulas:

Formulas:

$\text{PGI} = (A \times R) + \text{OI}$
$\text{VL} = (A \times R) \times \left(1 - \frac{\text{OR}}{100}\right)$
$\text{EGI} = \text{PGI} - \text{VL}$
$\text{OPEX} = T + M + I + \text{MN} + \text{RP} + \text{OE}$
$ \text{NOI} = \text{EGI} - \text{OPEX}$

Where:

$ A $: Property area (sq ft)
$ R $: Rental rate per sq ft (USD/year)
$ \text{OI} $: Other income, e.g., parking (USD/year)
$ \text{OR} $: Occupancy rate (%)
$ T $: Property tax (USD/year)
$ M $: Management fees (USD/year)
$ I $: Insurance costs (USD/year)
$ \text{MN} $: Maintenance costs (USD/year)
$ \text{RP} $: Repair costs (USD/year)
$ \text{OE} $: Other expenses (USD/year)

Steps:

Step 1: Calculate PGI. Multiply area by rental rate and add other income.
Step 2: Calculate EGI. Subtract vacancy loss (unrented income) from PGI.
Step 3: Calculate OPEX. Sum tax, management, insurance, maintenance, repairs, and other expenses.
Step 4: Calculate NOI. Subtract OPEX from EGI.

3. Importance of NOI Calculation

Calculating NOI is key for:

Investment Analysis: Measures property profitability for investment decisions.
Property Valuation: Used to estimate value via capitalization rate ($ \text{NOI} \div \text{Cap Rate} $).
Financial Planning: Aids in budgeting expenses and forecasting income.

4. Using the Calculator

Example: For a property with $ A = 1,500 \text{ sq ft} $, $ R = \$300 \text{ per sq ft/year} $, $ \text{OI} = \$2,000 $, $ \text{OR} = 85\% $, and expenses ($ T = \$20,000 $, $ M = \$14,000 $, $ I = \$19,500 $, $ \text{MN} = \$18,000 $, $ \text{RP} = \$24,500 $, $ \text{OE} = \$17,000 $):

Step 1: PGI = $ (1,500 \times 300) + 2,000 = \$452,000 $.
Step 2: VL = $ (1,500 \times 300) \times (1 - 0.85) = \$67,500 $. EGI = $ 452,000 - 67,500 = \$384,500 $.
Step 3: OPEX = $ 20,000 + 14,000 + 19,500 + 18,000 + 24,500 + 17,000 = \$113,000 $.
Step 4: NOI = $ 384,500 - 113,000 = \$271,500 $.
Result: NOI = \$271,500/year.

5. Frequently Asked Questions (FAQ)

Q: How do I calculate NOI?
A: NOI is calculated in four steps: (1) Compute PGI ($ A \times R + \text{OI} $); (2) Subtract VL to get EGI; (3) Sum OPEX ($ T + M + I + \text{MN} + \text{RP} + \text{OE} $); (4) Subtract OPEX from EGI. For example, a 1,500 sq ft property with $300/sq ft rent, $2,000 parking, 85% occupancy, and $113,000 expenses yields NOI = $271,500.

Q: What expenses are included in OPEX?
A: OPEX includes property tax, management fees, insurance, maintenance, repairs, and other operating costs, but excludes debt service and capital expenditures.

Q: Why is NOI important for investors?
A: NOI measures profitability, aiding in performance assessment, property comparison, and valuation using the capitalization rate.