I was using the BP Rental Calculator to analyze an owner occupied rental property. My NOI came out much higher than I expected. I noticed that when I calculated the numbers manually I could get the same NOI if I left out the monthly mortgage expenses of "principal & interest". Why is the "principal & interest" of a mortgage not calculated in the expense portion of an NOI calculation?
@Brandon Hunsaker NOI is the return on the property if you pay all cash. The reason is you want to know the value of the business you are buying, so that you can compare to other investment opportunities.
How you choose to pay for that property/business is a separate issue as to what the business is worth. How you finance it may increase or decrease your returns. But how you fiance it should not change the value of the asset you are buying.
Does that make sense?
Awesome yes that makes a lot of sense thanks so much! So I understand it to mean that the NOI is just comparing the income to the operating expenses and does not include possible financing expenses since financing does not change the value of the property.
When you deduct debt service “mortgage/loan” from the NOI it = cash flow..
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