Net Operating Income & Cap Rate - conflicting evidence

[Colin Middel]

Hey all

I have been creating my own spreadsheets and basing it off the BP calculator for a rental property. I found that Bigger pockets definition of NOI includes principle and interest. This also is reflected in the calculated in the pro forma and purchased Cap rate. Shouldn't NOI be equal to the annual cash flow?

For example. The property I am analyzing gives a annual cash flow of $3,326.26, whereas (according to the BP calculator), my NOI is 17552. through guess and check, I determined that the 17552 is my P and I of 1185.48 * 12 plus 3326.26.

Cans someone please give me an explanation of why i should or shouldn't include P&I in my NOI? Is is simply because that is how you calculate the cap rate? It doesn't make sense to me that you would include P&I. My guess is you would include the principle because you are gaining equity during that specific year, however interest certainly is not a gain.

[Wayne Brooks]

No. NOI does not include a deduction for P&I. NOI is the operating net income from the property, as in a cash purchase. Financing methods and cost can vary, and is not related to what the property actually produces. And yes, NOI less P&I will be your cash flow, after financing.