Deal Clarity™ Foundational Terminology
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NOI
NOI (Net Operating Income)
Total income a property generates minus all operating expenses, before debt service (mortgage payments) and taxes. NOI = Gross Income - Vacancy - Operating Expenses. It is the primary metric used to value income-producing properties.
Analyst's Note: NOI is the heartbeat of every income property analysis. Always rebuild NOI from scratch — never accept the seller's stated NOI without verifying every income line and expense. Inflated NOI is the most common way bad deals are disguised as good ones.
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Cap Rate
Cap Rate (Capitalization Rate)
A property's Net Operating Income divided by its value or purchase price, expressed as a percentage. Cap Rate = NOI / Property Value. It is the standard metric for comparing the relative value of income-producing properties.
Analyst's Note: Cap rate lets you compare deals apples-to-apples across a market, but it is a snapshot, not a forecast. Always confirm which NOI was used to calculate it — an inflated NOI produces a cap rate that looks better than the deal actually is.
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DSCR (Debt Service Coverage Ratio)
The ratio of a property's NOI to its annual debt service (total mortgage payments). DSCR = NOI / Annual Debt Service. A DSCR of 1.0 means income exactly covers the mortgage. Most lenders require 1.20-1.25 or higher.
Analyst's Note: DSCR is the lender's primary test of whether a deal can carry its own debt. Flag anything below 1.25 as a lender risk — because most institutional lenders will not touch it, regardless of how good the deal looks on paper.
DSCR
2025
New York
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