The direct answer
Effective gross income (EGI), net operating income (NOI), and cash flow are successive measures of rental-property performance. EGI reflects achievable operating revenue after vacancy and collection loss plus other operating income; NOI subtracts operating expenses; cash flow then accounts for financing and other investor cash outlays under the chosen model.
Build EGI from the income schedule
Begin with potential rental income, subtract vacancy, concessions or collection losses according to a consistent reporting convention, and add qualifying other operating income. Do not use total guest charges or refundable deposits as ordinary earned revenue.
To apply the approach to an editable scenario, use the Commercial Property Valuation Calculator. For the neighboring question, explore NOI Calculator.
Subtract property operating expenses for NOI
Include recurring property costs such as taxes, insurance, management and ordinary operations, but exclude debt service and income taxes from standard property NOI.
Bridge NOI to actual cash available
Subtract debt service and separately modeled capital expenditures or replacement funding. Because cash-flow conventions vary, disclose whether one-time transactions and income taxes are included.
Worked example
Potential rent of $240,000 less $20,000 vacancy/credit loss plus $5,000 other income gives $225,000 EGI. After $85,000 operating expenses, NOI is $140,000. Subtracting $95,000 debt service and $12,000 capital spending yields illustrative pre-income-tax cash flow of $33,000.
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Common mistakes and limitations
Do not compare NOI with leveraged cash flow or double-subtract vacancy when it is already reflected in collections.
Direct-capitalization estimate only. Cap rate selection and stabilized NOI require market judgment; not an appraisal.
Frequently asked questions
Does NOI include mortgage payments?
No. Standard property-level NOI excludes financing payments.
Can EGI include other property income?
Yes, when the income is earned from operations and is categorized consistently.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
- Appraisal Institute — Basic Formulas — Income CapitalizationIncome/cap-rate/value relationships, gross income multiplier and debt-coverage formula references.
Read our editorial policy for the scope of these educational methods.