Does NOI include mortgage payments or not?

[Jacob Miller]

As i have been searching for more and more information to help me better analyze deals i have come acrossed conflicting information regarding how to calculate NOI. Some information include the mortgage payment in the calculation and others don't It would be my assumption that it should not be included because financing is different for every person and every deal so you want a number that universal and descriptive of the deal. But how do you make since of the CAP rate if you don't include the monthly expense from the mortgage?

[Kristina Sparrow]

No, debt service is considered a "below the line" expense that affects net cash flow but is NOT included in NOI. The reason is because different operators will have different financing methods and rates and it is not a cost that is intrinsically necessary for operating the property (net operating income). Since the price of commercial buildings are valued based on NOI, including debt service or interest expense would be a huge and unnecessary hit to your purchase price when sending out offers.