Cap rate and NOI

How NOI is built

• NOI is collected income after vacancy and operating expenses, and before loan payments.
• Depreciation is not in it.
• Income tax is not in it.
• A reserve the model treats as an operating line is in it, and you should know that when you compare two deals.

• On Cayuga Commons (Illustrative Case) the path is visible.
• Residential gross potential rent is $691,200.00.
• Residential vacancy is ($41,472.00).
• Retail gross potential rent is $159,600.00.
• Retail vacancy is ($12,768.00).
• Other income is $45,000.00.
• Effective gross income is $841,560.00.
• Operating expenses are ($247,493.60).
• Year 1 NOI is $594,066.40.
• Vacancy and operating expenses are reductions, so the engine prints them in parentheses.

Where the expenses go

• The operating expenses are not one lump.
• Taxes, insurance, management, repairs, utilities, marketing, and reserves are each a line.
• Management and reserves move with income.
• The others are entered amounts that grow with the expense growth rate, 2.50% a year on this case.

From NOI to a cap rate

• The price is $8,500,000.
• Year 1 NOI is $594,066.40.
• The engine's going-in cap rate is 6.99%.
• The sale uses the following year's NOI at an exit cap of 6.50%.
• Those are two different rates, and mixing them is how a memo starts to argue with itself.

The free cap rate calculator divides a NOI you type by a price you type. Use it for one year. Use the model when you also need the loan, the hold, and the sale.