Analyzing apt complex - how 2 acct for depreciation expnese

[Carey Green]

I'm looking at the P&L for an apartment complex I'm considering as an opportunity to bring private money investors into - however, this is my first time doing a deal this size and I'm curious what I should do in my assessment to account for the depreciation expense shown on the P&L.

It's showing under "Other Expenses > Depreciation Expense" at $92,580.00

Should that be considered part of the NOI or not? If so, all of it, or just a fraction?

Or is there another way to account for it?

Thanks!

[Nick B.]

Depreciation does not affect NOI. It's a fantom loss. The only time you need to account for depreciation is when you file taxes. Other than that depreciation should not appear on the P&L statement.

If it does, you're most likely dealing with a "mom & pop" owner. They may have a lot of unusual expenses tucked into their P&L - car payments, cell phones, travel, etc.

You may add depreciation in your analysis spreadsheet below cash flow line (NOI less debt service) to estimate taxable income.

Nick