In short, it is NOI less mortgage payment and capital expenses.
Start by calculating a property’s projected net operating income (NOI) for the twelve months (or often multiple years) following the acquisition. NOI is the anticipated revenues, less only expenses related to the operation of the property.
Depreciation, mortgage debt service payments (both interest and principal), income taxes and capital expenditures aren’t included in NOI. Why? Because with a good estimate of the property’s NOI, you can determine the following: what the property is worth, the amount you can borrow, the equity required, and ultimately, cash flow. See blog link below for more detail and examples.
Nov 1, 2016