One of the first things I ask a client during our initial conversation is how much is the loan amount and what is the NOI on the property?

Most of the time this separates the first time buyers from the seasoned pros by whether or not they know what I am referring to. When they hesitate, hem and haw with crickets resounding in the distance, I know they have no idea of what I’m talking about but 9 out of 10 will chirp up.

Well, it grossed $300,000.00 last year!

My response

That’s great but what is the NOI? Again, all crickets in response.

It’s great to be excited about a new purchase and mortgage professionals hear about all the bells and whistles with each client’s new opportunity every day, in fact, we are genuinely excited for you.
What comes with all of that is the in a nutshell version of what the property nets (NOI) versus the often over exaggerated gross figure plastered all over the realtors brochures filled with property accolades.

The very definition of NOI is net operating income simply stated, the bottom line. The NOI is the gross income (rentals and sales) less all of the expenses with the exception of the mortgage payment and any depreciation.

Self Storage is one of those property types where there can be a lot of cash trading hands and it does not always end up in the gross income box on the seller’s tax returns, much less on the experienced operator’s profit and loss statement. Oftentimes I picture that old cartoon with Snively Whiplash twirling his mustache in an effort to trick someone into something as the operator passes one of two sets of books under the table to the potential buyer explaining that Uncle Sam can’t know about this.

Well  if the government can’t know about this, then neither can the lender since they rely on tax returns to show the income for at least 2-3 years.

That’s where NOI can be a little bit tricky. For the most part, the majority of parks valued over $2-3,000,000.00 keep very accurate records since they often employ professional management companies and have CPA’s tending to their books. The ones below that sometimes use creative bookkeeping in order to make as much money as possible.

The good news is that even if your tax returns reflect a negative income, there are several things that we can add back into the mix that will change that number from red to black for underwriting purposes.

I recently had a client whose income was nearly $100,000. 00 negative and once I reviewed his returns, I found a number of add backs enabling him to show a positive cash flow that got him approved. Now, that’s not to say we can write off the convention in Mexico which was really a family get away but it does mean that underwriters look at a number of conventional expenses as given necessities to the business that we can demonstrate on the final cash flow.

The best thing to do is get beyond the brochure fluff and get the financials as soon as you have your earnest money deposit in place upon executing a contract. Be sure to leave yourself a few loopholes in the contract for inspection, appraisal and finance, as well. If the owner is not forthcoming with the financials or hands you a sheet of scribbled on yellow legal paper, run don’t walk from the deal. There is too much great inventory on the market and too many terrific reputable owner/operators who would love to have your business.


Anita Huedepohl
Senior Loan Officer
Liberty Funding