Do capital expenditures count in NOI?
No. Capital expenditures and replacement reserves sit below the NOI line. A new roof is not an operating expense; it is capital. Keeping it out of NOI is what makes your cap rate comparable to the market comps you are pricing against.
Why it matters
Cap rate is only useful as a comparison, and every broker's comp excludes CapEx. Deduct it from your NOI and you are comparing your conservative number against everyone else's optimistic one — you will conclude every deal is overpriced.
What it does to the number
The opposite error is worse, and it is the common one: leaving CapEx out of the analysis entirely rather than out of NOI. Roofs, HVAC, water heaters and turnover all arrive eventually. This tool reserves for them below the NOI line, where they belong — visible, and hitting cash flow.
Worth knowing
- Repairs keep the asset working and are operating expenses. Replacements extend its life and are capital.
- A reserve is money set aside per year, not money spent this year.
- CapEx reduces cash flow and cash-on-cash return. It does not touch NOI or cap rate.
- Leaving CapEx out of the model altogether is the reason paper cash flow so often fails to show up in a bank account.
The rule this calculator locks
Capital expenditures / replacement reserves sit BELOW the NOI line. They reduce cash flow and cash-on-cash, not NOI.