# Questions about NOI. Can anyone help me?

9 Replies

Hey everyone,

I am in the process of analyzing a potential deal. I have attached the link to the calculator below so you can take a look at the details.

I am wondering how the calculator is coming up with the NOI? No matter how I try to run it I do not come up with the same numbers and am concerned I have the wrong equation for calculating NOI. I am under the impression that NOI = Income - Expenses. If I follow this equation I come up with Income = \$49,800, Expenses on the low end = \$34,356, which should make NOI =\$15,444.

Can someone explain what I am doing wrong please?

Also, if you are interested in looking over the rest of the deal I would love your feedback!

Thank you!

View report

*This link comes directly from our calculators, based on information input by the member who posted.

Correct, NOI = Income minus expenses.....but expenses do Not include P&I. NOI is the same whether you finance the property or pay cash.

NOI-P&I= Cash Flow

Note...your vacancy seems high, unless a really low class property.  Bit youhave No expenses in there for normal repairs and maintenance, repairs/turn over cost between tenants, or capex....which are all Real expenses.

Wayne,

Thank you for taking a look at this. I removed the capex and other expenses because I am following the Brrrrr method for this property and will be renovating the entire property before putting it on the market. This should allow me 3-5 years of avoiding most expenses. My plan is to dump all profits from cash flow into a "OH S***" account which will grow at \$10,152 a year. By the time my property needs any major fixes I should have plenty of money in the "OH S***" account to cover the fixes. What are your thoughts on this strategy?

As for the NOI, I completely forgot that expenses do not include P&I!

Thank you!

@Logan Aardrup Your “oh sh\$t” account IS your capex...you need to put a reasonable amount in for that, and for repairs/repainting between tenants.

@Wayne Brooks Understood. Thanks for your help!

@Wayne Brooks

A couple more question, I have heard that a good rule of thumb for estimating capex is 8% of monthly income. Also, I have heard 6% of purchase price for closing costs?

Are those good rules to follow while estimating?

And do you have any other % rules you could share that help in the estimation process?

Thank you,

Logan Aardrup

@Logan Aardrup You may seek, or shoot for, a cap rate of 8%, but tou can not Estimate the cap rate based on the price.

@Logan Aardrup a decent rule of thumb for CapEx is 8-10% of monthly rent and 5% for Repairs and Maintenance. Lots of variables of course but that's a good place to start.

Great!

Thanks @Kyle Smith

@Logan Aardrup , what kind of property is this? MFR, right?

• 8% is probably fine for vacancy.
• If you're actually adding \$150k of value, you should expect your taxes to go up.
• Despite the renovation, I would still be accounting for repairs and CapEx (15% combined) along the lines of what @Kyle Smith recommended. You're planning for the long term here.
• What about water/sewer, house electric, lawn care, snow removal, and professional fees?