In this guide
- What NOI is and the formula
- What counts as revenue
- What counts as an operating expense
- What's excluded from NOI
- A worked example
- Normalizing NOI for a sale
- Why NOI drives your price
Key takeaways
- NOI = revenue − operating expenses, before debt, depreciation, taxes, capex, and one-time items.
- It's the number your value is built on: value = NOI ÷ cap rate.
- Exclude the mortgage — NOI measures the property's income, not how it's financed.
- For a sale, normalize with add-backs (owner's above-market pay, one-time costs) so the NOI reflects the real business.
What is NOI for an assisted living facility?
NOI is your facility's annual operating income: total revenue minus the operating expenses required to run it. It deliberately excludes financing and accounting items so buyers can compare facilities on a like-for-like basis. The formula is simple:
NOI = Total revenue − Operating expenses
Because a facility is valued by dividing NOI by a market cap rate, NOI is the single most important number in a sale. For the bigger valuation picture, see how assisted living facilities are valued and assisted living cap rates.
What counts as revenue?
Revenue is everything the facility bills residents to operate. That includes base room-and-board rent, care or level-of-care fees (charges that rise with each resident's acuity), and ancillary income such as medication management, meals, and other services. Use actual, collected revenue — not the rate sheet — so occupancy and concessions are reflected.
What counts as an operating expense?
Operating expenses are the ongoing costs of running the home. The major categories are caregiver and staff payroll (usually the largest), food, utilities, insurance, property taxes, repairs and maintenance, management, marketing, supplies, and administrative costs. These are recurring costs required to keep the facility operating at its current census.
What's excluded from NOI?
Leave out anything tied to financing, accounting, or one-time events. Specifically, exclude the mortgage/debt service, depreciation and amortization, income taxes, capital expenditures (major replacements like a new roof or HVAC), and non-recurring items. NOI measures the property's earning power independent of how a particular owner financed or capitalized it — which is exactly why buyers rely on it.
A worked NOI example
| Line item | Amount |
|---|---|
| Total revenue (rent + care fees + ancillary) | $1,200,000 |
| Less: payroll & benefits | ($520,000) |
| Less: food, utilities, insurance, taxes | ($180,000) |
| Less: management, marketing, R&M, admin | ($150,000) |
| Operating expenses | ($850,000) |
| Net operating income (NOI) | $350,000 |
At a 7% cap rate, that $350,000 NOI implies a value of roughly $5.0 million. Change the NOI or the cap rate and the value moves with it.
Normalizing NOI for a sale
Buyers underwrite normalized NOI, not the raw tax return. Normalizing means adjusting for items that won't carry forward to a new owner: add back an owner's above-market salary (or subtract a market wage if the owner works for free), remove personal expenses run through the business, and strip out true one-time costs. The goal is an honest picture of the recurring income a buyer will actually inherit. Clean books make this credible — run your own due-diligence checklist before you list.
Why NOI drives your sale price
Every dollar of durable, normalized NOI is multiplied by the cap rate into value, so improving NOI is the most direct way to raise your price — the levers are in how to increase your facility's value before selling. When you want an expert to calculate and defend your NOI on the way to a sale, connect with a Buy Sell Assisted Living expert.
Informational only — not financial, legal, tax, or investment advice. Confirm your facility's financials and current market cap rates with qualified professionals before acting.