Is mortgage interest an expense?

[Account Closed]

My first post!

Hello, I can't seem to get a proper answer on this topic: Is mortgage interest an expense?

Some people seem to include it, other seems to think it shouldn't be included because the mortgage payment is not needed to manage your property. In other words, it's not part of your NOI (net operation income) and therefore excluded from your ROI.

What do you think?

Thanks for your help

[Ned Carey]

It depends on what you your purpose of defining expense is.

For IRS and tax purposes it is absolutely an expense and it is deductible (presuming we are talking interest for the purpose of investing. Check with your CPA)

When calculating Net Operating Income of a building it is not included.

The reason interest is not included, is that NOI determines how much income the building is generating. If someone gave you the building, or if you paid $1billion for it, the amount of income the building generates is the same.

Once you know how much income the building provides then you can decide how much you are willing to pay for that income stream. Once you know the price then you figure out how to pay for it. Whether you pay all cash or use financing as leverage will determine your cash on cash Return on investment

I hope this makes it clear. - Ned