Property Management

Property management is the work of operating a rental: finding and screening tenants, collecting rent, handling repairs and keeping records. Managers usually charge a percentage of rent collected. It belongs in NOI as an operating expense even when the owner does the work.

The calculator defaults to 8% of effective gross income, $3,648 a year on the default house. Leasing fees for placing a new tenant are often charged on top. Self-managing owners sometimes drop the line, but a buyer or lender will add it back because the next owner may hire someone.

Leaving management out raises NOI by $3,648 and, at a 6.5% cap rate, raises the apparent value by about $56,000. That is the most common reason a seller's NOI is higher than the one an appraiser calculates.