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Updated about 13 years ago on . Most recent reply

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John C
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Quick Question

John C
Posted

Need some help analyzing a financial statement for an apartment complex. Just wondering if capital improvements should be part of the expenses (i.e. should they be deducted from gross income to arrive at NOI). In this particular financial report, things like HVAC contractors, plumbing contractors, and roofing contractors are included in capital improvements and not deducted from gross income. Just wondering if this is the norm. Thank you.

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Tod R.
  • Investor
  • Southlake, TX
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Tod R.
  • Investor
  • Southlake, TX
Replied

Capital improvements are not included in NOI but are included in cash flow. However, if their FS literally describe the line items as "roof contractor" or "plumbing contractor" that makes me wonder if they are potentially combining capital improvements and repairs, just as Ann Bellamy mentioned.

Appraisers/analysts will include in the NOI a capital improvement "reserve" based on age, condition & market to cover estimated capital expenditures, just as Nathan Emmert mentioned.

Often on larger projects, the lender or equity partner requires a Property Condition Report in addition to the appraisal. This report will state the condition/remaining life of major components of the property and determine the amount that will be required to be escrowed.

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