I've done a rental analysis and have a question about the NOI

[Account Closed]

I've done a rental analysis on a potential rental property where I'd be charging $4200/month and the monthly expenses have come to $3635(Mortgage, tax, insurance, vacancy, cap ex, maintenance, Manage, HOA). The report says my NOI is $20,585.72. But if I got the formula correct ( NOI= annual income - annual expense) when I do it manually it comes to $50,400 - 43,627.2 = $6,772.80. What am I missing?

Thanks

[Bill B.]

I was going to say I have $50 that says you included the entire mortgage payment as an expense…it’s not. You need to replace the mortgage payment in your income minus expense calculation with just the interest and taxes, nearly 1/3rd of your payment will be towards principle, which is not an expense. 

But then I re-read your post. For some reason you're trying to figure out NOI? Is there a new guru in town? You're the second or third person to ask about NOI on rental properties this week. NOI has no business in real estate calculations. Net OPERATING income, means the income if you purchased the BUSINESS for cash. So it's easier to compare the business without the financing clouding the comparison.

So…delete NOI from your real estate dictionary/language. But the answer to your question is neither the principle nor the interest count in NOI. So it means nothing if you plan to borrow money.