A property's annual income minus its operating expenses, before loan payments, income taxes and depreciation. It is the top number in DSCR and debt yield.
NOI is annual gross income less operating expenses. In the OCC handbook’s definition it leaves out interest, principal payments, income taxes, depreciation and capital items. It does include a replacement reserve, counted as an expense whether or not the owner sets the money aside. Stabilized NOI starts from income as if fully leased, then takes off a vacancy factor to reach effective gross income.
Example: rents at full occupancy of $300,000, less 5 percent vacancy of $15,000, is effective gross income of $285,000. Operating expenses of $100,000 plus a $10,000 replacement reserve leave NOI of $175,000.
The number a lender uses is rarely the one on the owner’s tax return or the broker’s flyer. Underwriters add a management fee even if you manage the property yourself, mark vacancy to the local market, and reset property taxes after a sale. Each of those lowers NOI, and with it the loan that a given coverage ratio supports. Ask the lender for its underwritten NOI so you can see where it differs from yours.
How it shows up in the data here
Not in any public file. No filing here carries a property's income or a lender's underwritten NOI. A lender will rebuild it from your rent roll and trailing 12 months of statements, often lower than your own figure. Test both versions in the DSCR calculator.
Go further
- DSCR calculator: Coverage from the income and expenses you enter.
- Debt yield calculator: The same NOI measured against the loan amount.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- Debt yield calculator: Cash flow over the loan. The one ratio that ignores the rate, the amortization and the cap rate.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
- Investor commercial real estate loan checklist: On an investor property the rent pays the loan. The package is the evidence for the rent: who pays it, for how long, what it costs to collect, and who stands behind the borrower if it stops.
Related terms
- Effective gross income (EGI): The income a property is expected to produce after subtracting an allowance for vacancy and for rent that will not be collected.
- Replacement reserves: Money set aside, or an expense assumed by the lender, for periodic replacement of capital items such as roofs, heating and cooling systems and parking lots.
- T-12 (trailing 12 months): A property's income and expense statement for the most recent twelve months, usually shown month by month.
- Rent roll: A list of every unit or space in a property showing the tenant, the rent, the lease dates and what is vacant, as of a stated date.
- Pro forma: A projection of a property's or project's future income, expenses and cash flow, built on stated assumptions and not on past results.
- Debt service coverage ratio (DSCR): Net operating income, or business cash flow, divided by the loan payments due in a year. It shows how many dollars come in for each dollar of debt service.
- Capitalization rate (cap rate): A property's stabilized net operating income divided by its price or value. Divide income by the cap rate and you get an estimate of value.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.