Alternative asset Valuation why, payment

Bulla564

i have noted that when calculating after tax cashflow they don’t add back depreciation to the NOI they just subtract mogage payment and taxes. does anyone know why we don’t add back depreciation to the NOI?

JGovender

yeah, thommo is saying what i was trying to get at. I think thats the answer.

Micholien

Cpk…land is never depreciated, but buildings and other properties most certainly depreciate.
NOI is calculated by not deducting depreciation, thus there is no need to add it back.
For example, NOI is equal to gross income minus vacancy costs minus insurance and property taxes minus utilities minus R&M. Depreciation is not deducted to derive NOI. Make sense?
However, depreciation is deducted in calculating the income tax payable.

busprof

possible reason - depreciation is not included - is
it is a tax benefit provider only.
Property almost never depreciates, except in rare cases. so while valuing the property - taking off depreciation to show a lower value is not allowed.

lunarfollies

NOI - Interest Exp - Depr Expense = before Tax CF
before Tax cash Flow * Tax rate = Tax Amount
NOI - Debt Service - Tax Amount = AT CF.
Debt Service = Principal + Interest paid for the loan.
Depreciation is only used to calculate the Tax.

Iginla2011

my understanding is that NOI wouldn’t have included deprecation in it anyway. Therfore, since depreciation was not deducted in arriving at NOI, there would be no need to add it back (unlike other cash flow calculations that start with NET INCOME, which is inclusive of depreciation expense).
I’m not sure if thats technically correct, could someone please verify? Stuck at work and cant really look it up….

Windjammer

For real estate, you should add back depr and subract principal payments for true cash flow. I think thats what I recall but I dont have my book in front of me.