Real Estate
Net operating income
What the property earns in a year before any financing cost.
The Formula
NOI = rent x 12 x (1 - vacancy) - operating expenses
What the property earns in a year before any financing cost.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| NOI | Net operating income | currency per year | Annual income less annual operating costs. |
| R | Monthly rent | currency per month | The gross rent collected per month. |
| v | Vacancy rate | fraction | The share of rent expected to be lost to vacancy. |
| E | Operating expenses | currency per year | Running costs for the year. |
What Each Symbol Means
NOIcurrency per year
Net operating income
Annual income less annual operating costs.
Rcurrency per month
Monthly rent
The gross rent collected per month.
vfraction
Vacancy rate
The share of rent expected to be lost to vacancy.
Ecurrency per year
Operating expenses
Running costs for the year.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate debt service coverage page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Debt Service Coverage, filed under Finance. Every number the guide produces comes from substituting into this one line.