What a buyer counts in your NOI, and what they throw out
A buyer values your building on the net operating income they expect to collect. Their underwriter starts from your trailing twelve months and rent roll, then adjusts. See the adjustments before you set an asking price.
Every example below is a 32-unit building valued at a 6% cap rate, where each $1,000 of NOI is worth about $16,700.
Management, even if you do it yourself
If you manage the building yourself and pay no fee, a buyer still charges one, because they’ll pay someone or pay themselves. At 5% of $520,000 collected, that’s $26,000 of expense you don’t have, or about $433,000 of value.
Reserves for replacement
Roofs and boilers wear out. Lenders size loans with an allowance for replacement reserves, and buyers carry one too. At $300 a unit, a 32-unit building loses $9,600 of NOI, about $160,000 of value. Use what your lender or a property condition report suggests, not this number.
Insurance at the renewal, not last year’s premium
A buyer will get a fresh quote. If your $60,000 premium renews 20% higher, that’s $12,000 less NOI, about $200,000 of value. Use the renewal number.
Property taxes after the sale
In many places a sale lets the assessor reset the value to the price paid. If yours does, the buyer’s tax bill depends on what they pay, and the worksheet’s tax reset option solves for both at once. Ask your county assessor how a sale is treated; rules differ by state and county.
Rents: in place, not asking
Buyers use rents tenants actually pay. If eight units are $150 below market, the buyer sees $14,400 a year of upside they plan to capture themselves. They may pay for some of it; they won’t pay for all of it.
Vacancy and bad debt
Your last twelve months may show almost no vacancy. A buyer will use at least what the market and their lender assume. The difference between 2% and 5% on $550,000 of gross income is $16,500 of NOI, about $275,000 of value.
One-time items
A buyer removes one-time income (an insurance claim, a lease buyout) and also removes one-time expenses (a roof replacement you expensed). If you had a big repair year, show it separately so a buyer doesn’t treat a one-time cost as recurring.
Put the adjusted numbers into the worksheet. If the gap between your NOI and the buyer’s is large, fixing the cause for a year before a sale often beats arguing about the cap rate.