NOI vs Cash Flow: What Every Agent Gets Wrong
By Khai Tran | Category: CRE | 5 min read
Most agents mix up NOI and cash flow, which leads to bad underwriting and shaky investor conversations. This post breaks down the difference so you can speak with confidence and analyze deals the right way.
What is NOI?
Net Operating Income (NOI) is the property's income after operating expenses but before debt service. It tells you how much the property generates regardless of how it is financed.
NOI = Gross Income - Operating Expenses
What is Cash Flow?
Cash flow is what is left after paying the mortgage. This is what the investor actually takes home. Two investors can buy the same property and have completely different cash flows based on their financing terms.
Cash Flow = NOI - Debt Service
Why the Distinction Matters
NOI is used to calculate cap rate and compare properties objectively. Cash flow tells you the actual return on your investment after financing. Confusing these leads to presenting the wrong numbers to investors.
Common Mistakes
Including debt payments in NOI calculation. Forgetting to account for vacancy rates. Mixing up gross income with effective gross income. These mistakes make you look inexperienced to CRE investors.
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