Non-Operating Expenses

Non-operating expenses are costs associated with owning or financing a property that are typically excluded from Net Operating Income (NOI). They matter to your overall profitability, but they are not considered part of normal property operations, which is why they are separated when investors and lenders evaluate performance.

Common non-operating expenses include debt service (mortgage principal and interest), income taxes, and depreciation. These items are tied to how the deal is structured for a specific owner—your loan terms, tax situation, and accounting treatment—rather than how the property itself performs operationally.

Non-operating expenses also include major one-time or long-term capital items, often referred to as capital expenditures (CapEx). These are upgrades or replacements that extend the life of the property or materially improve it, such as a new roof, major HVAC replacement, exterior renovations, or significant unit remodels. These costs can be substantial and are often budgeted separately from routine operating expenses. Some investors also set aside replacement reserves as a planned buffer for future capital items, which may be shown below NOI even though it supports long-term operations.

Understanding non-operating expenses is important because it keeps your analysis clean. NOI is designed to measure the property’s operating strength, while non-operating expenses help you evaluate the deal’s cash flow, tax impact, and long-term capital needs. Keeping them separated allows you to compare properties consistently and avoid confusing a financing decision with the underlying performance of the asset.