Analysis
Never Trust the Seller's NOI: Rebuild It Yourself
The seller's NOI is an argument, not a fact. Rebuild it from the ground up and it almost always comes in lower, which is your negotiation.
Why the seller's NOI is always high
Sellers present the most flattering version of the numbers that is still technically true. They count income generously and expenses sparingly. Your job is to rebuild the NOI on the costs you will actually carry as the owner. Four adjustments do most of the work. Run the rebuild through the NOI calculator, then re-check the price it justifies on the cap rate calculator.
Management fee
Add a market management fee even if the seller self-manages and even if you plan to. Your time has a market cost, and the day you hire out, that expense is real. Leaving it out is the single most common way a seller's NOI is inflated. A typical figure is a percent of effective gross income appropriate to the asset.
Capital expenditure reserve
Marketing numbers almost never include a reserve for replacing roofs, roads, utility systems, or park-owned homes. Wear tracks the physical asset, not the rent, so a reserve driven by what the property actually is belongs inside NOI. Without it, you are financing tomorrow's roof out of today's cash flow by surprise.
Property taxes at reassessment
In many counties a sale triggers reassessment, and the tax bill you inherit is not the one on the seller's statement. Carry the bill you will actually pay, weighted by how your county behaves at a sale, rather than the current owner's long-frozen assessment. Understating taxes overstates NOI, the one direction you must never err.
Honest occupancy
Use trailing, verified occupancy from the rent roll, not the peak-season or pro-forma figure. Keep both the seller's claim and the real number: the gap between them is evidence at the negotiating table.
Put it to work
This normalization is exactly what the underwriter does automatically, showing every adjusted line in gold with a plain-English reason. Underwrite a deal free.
Questions
Why add a management fee if I self-manage?
Because your time has a market value and the expense becomes real the moment you hire a manager or sell. Underwriting without it overstates NOI and inflates the price you can justify.
How much should I reserve for capital expenditures?
Enough to match the physical asset: per site for RV parks, per lot plus park-owned homes for mobile home parks, per unit by age for apartments. A common ceiling is around 10% of income so the reserve does not unrealistically crush NOI.
Will my property taxes really go up after I buy?
Often, but not always. It depends on whether your county reassesses on sale and whether your state even discloses sale prices. Carry the expected bill, not a guess, and verify the current bill against county records.
Related guides
Part of the RVP Underwriter guide library: practical guides to underwriting and buying income property. Browse all guides, or read the complete free guide with a full worked example.