Since this isn’t actual cash flow that you lose, don’t count it. It won’t come up unless you sell or refinance. Plus, your building is more likely to improve its worth through time.
Income Taxes
Don’t count these the way you count property taxes. They are specific to your company but not your property. They are excluded from your NOI.
Capital Expenditures
These are considered regularly repairs or mandatory, not to be confused with routine maintenance that you do factor into your NOI. This is one-time major replacements or repairs. Examples are buying a whole new HVAC unit or redoing an entire restroom, not things like replacing light bulbs, doorknobs, and lawn care. Because these big expenditures are one-time fees, they don’t factor into your NOI. In theory, they do for that year, but predicting your NOI when getting financing will not include this.
HOW TO USE NOI
When you are doing your property search, you can use your NOI formula to find out the value of the property to your company. It helps you make a smart choice, and choose a building that fits your company’s income and financial status. After you complete a purchase, it can be used to measure your cash flow. Lenders are naturally inclined to use this as a baseline for loan approvals most of the time. They are paying for it upfront, and have to be sure you can pay the loan back.
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