NOI from a rent roll: gross potential rent to effective gross income to NOI
Net operating income (NOI) is effective gross income less operating expenses, before debt service, income tax, depreciation and capital spending. A rent roll supplies the top of the build: gross potential rent, less loss to lease, vacancy and concessions. Add other income to reach effective gross income, then subtract the expenses from the operating statement.
Updated 28 October 2026. General information, not investment, lending, legal or tax advice. Practice differs by lender, program and jurisdiction.
The three layers between a rent roll and NOI
Gross potential rent
Gross potential rent (GPR) is what the building would collect if every unit were leased at market rent. Some underwriters define it on in-place rent for occupied units plus market rent for vacant ones, so check which convention a model uses.
Effective gross income
Effective gross income (EGI) is GPR after the things that stop it reaching the bank: loss to lease, vacancy, concessions and credit loss. Add other income such as parking, laundry and fees. On commercial rolls, expense recoveries from tenants belong here too.
Net operating income
NOI is EGI minus operating expenses: taxes, insurance, utilities, repairs, payroll and management. Whether replacement reserves sit above or below the NOI line depends on the lender or model, so state the convention. Interest, depreciation, income tax and capital spending are left out.
Building NOI from a rent roll in six steps
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Fix the date and prove the totals
Note the as-of date, then add up the rows and compare them with the total the report prints. Everything below inherits any error here.
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Build gross potential rent
Take each unit's market rent, occupied or not, and add them up. Market rent comes from the roll's market rent column if it has one, or from an appraisal or a broker's opinion.
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Take out loss to lease and vacancy
Loss to lease is market rent minus in-place rent on occupied units. Vacancy is the market rent of the vacant units. What is left is in-place rent, which should equal the roll's own rent total.
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Deduct concessions and credit loss
Concessions come from the roll's notes or the leases. Credit loss comes from the tenant ledger or the T-12, or from a lender's minimum factor.
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Add other income
Take parking, laundry, pet rent, fees and similar lines from the T-12, and keep them out of rent.
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Subtract operating expenses
Start from the T-12, then adjust for known changes such as a tax reassessment or a management fee floor. The result is NOI.
A worked example: 24 units, per month and per year
Invented figures for a 24-unit building: 12 one-bedrooms at $1,450 market rent and 12 two-bedrooms at $1,850, with 2 two-bedrooms vacant. Deductions are in parentheses.
| Line | Per month | Per year |
|---|---|---|
| Gross potential rent, 24 units at market | $39,600 | $475,200 |
| Less loss to lease | ($1,080) | ($12,960) |
| Less vacancy, 2 units at market | ($3,700) | ($44,400) |
| In-place rent | $34,820 | $417,840 |
| Less concessions | ($300) | ($3,600) |
| Less credit loss | ($350) | ($4,200) |
| Plus other income | $1,850 | $22,200 |
| Effective gross income | $36,020 | $432,240 |
| Less operating expenses | ($16,000) | ($192,000) |
| Net operating income | $20,020 | $240,240 |
In-place rent of $34,820 a month is the line that should tie to the rent roll's own total. Everything above it is arithmetic on market rents. Everything below it comes from other documents.
What goes wrong
Counting vacant units as income
Market rent on a vacant unit is potential, not income. It stays in GPR and comes out again as vacancy.
Pricing occupied units at market
Occupied units pay in-place rent. Using market rent ignores loss to lease and overstates NOI wherever tenants pay less than market.
Mixing monthly and annual
A roll states monthly rent and a statement states annual totals, which are easy to cross. Convert once and label every line.
Taking the seller's expenses as given
A pro forma that omits a management fee, assumes a lower tax bill or leaves out reserves lifts NOI. Compare each line with the T-12.
Building on a roll that was misread
A dropped row or a misread digit moves rent, and through a cap rate it moves value. Check the rows against the printed total first.
How RentRoll Engine helps
RentRoll Engine covers the first step and the in-place rent line. It reads a rent roll PDF into a CSV, checks rent and square feet against the page totals and shows occupancy, monthly rent for occupied units and annualized rent. It leaves market rent out and names it as unused, and it does not compute NOI. Free: 1 file per day, up to 10 pages, no account. Files over 10 pages are converted up to page 10 on the free allowance; a page code converts the whole file, up to 150 pages. See pricing.
Questions about NOI and rent rolls
What is the NOI formula?
NOI equals effective gross income minus operating expenses. Effective gross income is gross potential rent less vacancy, loss to lease, concessions and credit loss, plus other income.
Does NOI include debt service?
No. NOI is before mortgage payments, which is why it can be set against debt service to give a coverage ratio. It also excludes depreciation, income tax and capital expenditure.
Can I get NOI from a rent roll alone?
Only part of the way. The roll gives rental income. Other income, vacancy and credit loss assumptions and operating expenses come from the operating statement, the budget and the underwriter's judgement.
Should I use in-place rent or market rent?
In-place rent for occupied units, because that is what is contracted, and market rent for vacant units as potential. Market rent is also the benchmark for loss to lease.
Are replacement reserves part of NOI?
It depends on the convention. Some lenders and appraisers deduct reserves above the NOI line and others below it. State which you use, and follow the lender's definition for a loan.
How does NOI turn into value?
Dividing NOI by a capitalization rate gives an indicated value, so a small NOI error becomes a larger value error. At an illustrative 7% rate, $1,000 of NOI is about $14,300 of value.