Commercial mortgage underwriting
Net Operating Income (NOI)
NOI is a property-level income measure that generally starts with property revenue and subtracts operating expenses before financing costs and income taxes.
Basic formula
NOI = effective property income − operating expenses
Educational definitionNo universal lender threshold is implied.
Why it matters in commercial financing
For income-producing real estate, NOI can influence valuation and debt capacity. Lenders may normalize rents, vacancy and expenses differently, so borrower-presented NOI is not automatically the underwriting NOI.
Important cautions
- Debt service is generally not an operating expense in NOI.
- Capital expenditures may be treated separately.
- Vacancy and management assumptions can be normalized.
- Use current, supportable property information.
Discuss a real transaction
Move from the metric to the property and financing objective.
Worked NOI example
Suppose annual rent and other property income total $240,000 after a vacancy allowance, and operating expenses total $90,000. Illustrative NOI is $150,000 before mortgage debt service. Review whether the expense schedule includes realistic insurance, management, maintenance and property taxes. Keep extraordinary capital work visible separately so a simple NOI number does not hide a major cash requirement.
Further reading
Content reviewed September 9, 2026. These resources provide background; individual lender requirements and property circumstances differ. Illustrative calculations are examples, not financing offers.