Hi BP Community, 

I've recently purchased @Michael Blank 's Syndication Deal Analysis calculator. 

I've received a P&L statement from a broker. However, the NOI is trending in the red, due to recent capital improvements.

How do you account for recent capital expenses when trying to determine the NOI?

Thank you, 

Jacob Ayers 

Capital improvement expenditures (CapEx) are not included in the NOI calculation (i.e. they fall below-the-line). NOI, meaning Net Operating Income, is calculated by subtracting operation-based expenses from operation-based income. What this means is that the only expenses that you include in "operating expenses" are those that occur regularly, like taxes, insurance, utilities, non-CapEx repairs and maintenance. CapEx includes items that happen irregularly and are considered "one-time" items (even though they may occur every few years) like replacing a roof or a furnace.

In short, leave the CapEx out of the NOI equation.

After all that, let me just point out that if you interest is in knowing the cash left over after everything has been paid, then of course you would subtract out the CapEx as well as your mortgage payments (which are also below-the-NOI-line since they are a financing expenditure, not an operations expenditure). This results in what is termed Net Cash Flow.

Thank you, @David Bauer. 

I appreciate the response. 

Originally posted by @David Bauer :

Capital improvement expenditures (CapEx) are not included in the NOI calculation (i.e. they fall below-the-line). NOI, meaning Net Operating Income, is calculated by subtracting operation-based expenses from operation-based income. What this means is that the only expenses that you include in "operating expenses" are those that occur regularly, like taxes, insurance, utilities, non-CapEx repairs and maintenance. CapEx includes items that happen irregularly and are considered "one-time" items (even though they may occur every few years) like replacing a roof or a furnace.

In short, leave the CapEx out of the NOI equation.

After all that, let me just point out that if you interest is in knowing the cash left over after everything has been paid, then of course you would subtract out the CapEx as well as your mortgage payments (which are also below-the-NOI-line since they are a financing expenditure, not an operations expenditure). This results in what is termed Net Cash Flow.

Well explained. Yes Cap Ex (Capital Expenditure) and one time expenses should not be included in your NOI. Op Ex (Operational Expenditure) Taxes, Insurance, Utilities etc... should be part of your NOI calculation.