Is Property Management Included in NOI?

Yes. Property management fees are an operating expense and come off before NOI. Count them even if you manage the property yourself, usually at 8 to 10% of collected rent for long-term rentals. Appraisers, lenders and buyers all deduct a management fee, so leaving it out only overstates your NOI.

Why a self-managed property still gets a fee

NOI is supposed to show what the property earns for any owner. A buyer who does not want a second job will hire a manager, and the property management fee comes out of rent. An owner who self-manages is paid for that work in time, not out of NOI.

Leaving the fee out mixes the owner's labor into the property's income. That makes one building look better than an identical one with a hired manager, which is exactly what NOI is meant to prevent.

Management fees on a $500,000 rental

The default house charges management at 8% of the $45,600 collected rent, $3,648 a year. Without it NOI rises from $28,892 to $32,540, and at a 6.5% cap rate the property looks about $56,000 more valuable.

That is why a seller's statement without a management line is one of the first things a buyer fixes. The expense lines people leave out usually start with this one.

Typical fees

Long-term residential rentals usually pay 8 to 10% of collected rent, sometimes less on large multifamily buildings. Many managers also charge a leasing fee of half to a full month's rent for each new tenant, which belongs in operating expenses too.

Short-term rentals cost much more to manage, often 20 to 35% of booking revenue. Commercial property may charge 3 to 5% of collected income, often reimbursed by tenants as part of common area charges.

Property type	Typical management fee
Single-family and small multifamily	8 to 10% of collected rent
Large apartment buildings	3 to 6% of collected rent
Short-term rentals	20 to 35% of booking revenue
Commercial	3 to 5% of collected income

Apply the fee to collected rent

Managers are paid on rent collected, not rent scheduled. Apply the percentage to effective gross income, after vacancy. On the default house, 8% of the $48,000 scheduled rent would be $3,840. The right figure is 8% of $45,600, or $3,648.

Run the numbers on your property

The calculator below is loaded with the $500,000 example. Change any line to see how property management moves NOI and value, or read the full operating expense checklist for every line that belongs above NOI.

Itemized income and expense lines

Income

Monthly rent (all units)$Scheduled rent at full occupancyUnitsFor per-unit figures. 1 for a house or condo.Other monthly income$Parking, laundry, pet rent, storage, utility billbackVacancy and credit loss%$2,400 a year. 5 to 8% is typical.

Operating expenses

Annual property taxes$Use the bill after reassessment, not the seller'sAnnual insurance$Landlord policy, plus flood or wind where neededHOA dues (monthly)$Owner-paid utilities (monthly)$Water, sewer, trash, gas, common-area electricOther monthly expenses$Lawn, snow, pest, licenses, legal, accounting

Price and market (optional)

Purchase price or value$Leave at 0 if you only need NOI. Turns on the cap rate.Market cap rate%What comparable properties sell at. Values the NOI.

Net operating income (annual)

$28,892

$2,408 a month

Typical expenses · 37% ratio

Typical. 30 to 45% of collected income covers expenses, the range most single-family and small multifamily rentals land in with every cost counted.

Income statement

Gross scheduled income: $48,000
Vacancy and credit loss: -$2,400
Effective gross income: $45,600
Property taxes: -$6,000
Insurance: -$2,500
Maintenance: -$2,280
Capital reserves: -$2,280
Management: -$3,648
Total operating expenses: -$16,708
Net operating income: $28,892
Expense ratiooperating expenses / effective gross income: 36.6%
NOI marginNOI / effective gross income: 63.4%

What this NOI is worth

Value at a 6.50% cap rate: $444,492
Cap rate at this price$28,892 / $500,000: 5.78%
Priced above that value by: $55,508
Gross rent multiplierprice / gross scheduled income: 10.4

What moves it

Each $100/mo of rent addsof annual NOI after vacancy and percentage expenses: $935
Each point of vacancy costsof annual NOI: $394
Each $1,000 of NOI is worthat a 6.50% cap rate: $15,385

Property management and NOI questions

Is property management an operating expense?

Yes. It is a recurring cost of running the property that any owner would pay, either in fees or in their own time. It goes with taxes, insurance and maintenance above NOI.

Are leasing fees included in NOI?

Yes. Leasing and tenant placement fees are operating costs of keeping the property rented. Spread them over a typical year based on how often tenants turn over.

What percentage should I use for management if I self-manage?

Use the local market fee for your property type, usually 8 to 10% of collected rent for a long-term rental. That is what a buyer and an appraiser will use.

Sources: Wikipedia: Property management