Most buyers look at the asking price, see the NOI on the broker’s flyer, do some quick math, and decide the deal makes sense. I get it. The numbers look clean. The cap rate looks reasonable. The cash flow looks solid.
But here is the thing. That is not underwriting. That is the seller’s story. And the seller’s story is always the best version of the truth.
The number that actually tells you whether you are overpaying is not on any flyer. You have to build it yourself. And most buyers never do.
What most buyers actually do
They take the NOI the broker provides, divide it by the asking cap rate, and decide if the price feels right. Maybe they run it through a quick calculator. Maybe they check the debt service and see that it cash flows on paper.
That is it. Deal made.
And then six months after closing they are sitting at their kitchen table wondering why the numbers do not look anything like what they were shown. Not because they were lied to. Because nobody rebuilt the numbers honestly before they signed.
The number that actually matters
Your reconstructed NOI. Not the seller’s NOI. Yours.
Built from verified income, real vacancy, market rate management costs, honest CapEx, accurate expenses, and a debt structure you can actually survive. That number, divided by what you are paying, is the only cap rate that matters.
Everything else is marketing.
The three things that inflate almost every seller’s NOI
I have underwritten a lot of RV park deals. And I see the same three things inflating the NOI on almost every single one.
The first one is no management fee. The current owner self manages the park. They take no salary, they charge no management fee, and their expenses look lean and efficient. Except you are not them. If you plan to hire a manager, or if you ever want to sell this park to someone who will not self manage, that NOI is overstated by $40,000 to $60,000 a year on a park doing $500,000 in revenue. That is not a small number.
The second one is deferred CapEx. The seller has not put meaningful money back into the property in years. Roads, bathhouses, electrical, roofs, equipment. None of it shows up as an ongoing expense because they have just been letting things age. But you are going to inherit all of it. And in your first few years of ownership you will pay for every dollar they did not spend.
The third one is below market expenses. Long term vendors, family deals, owner relationships that disappear the day you close. The insurance agent who gave them a deal because they have been friends for 20 years. The maintenance guy who works cheap because the owner does half the work himself. Those numbers are not your numbers.
What the reconstructed NOI usually looks like
Let me give you a real example of how this plays out.
A park is advertised at a 9% cap rate. Looks great on paper. Buyer gets excited. But when you rebuild the NOI honestly, adding a market rate management fee, normalizing CapEx, adjusting the vendor expenses to what a new owner would actually pay, and running real vacancy numbers, that 9% cap rate becomes a 5.5% cap rate.
At the asking price that is a completely different deal. At a 5.5% cap rate you are now overpaying by hundreds of thousands of dollars for the same cash flow. And you will not find that out until after you close.
That is not a hypothetical. That is what I see on a regular basis.
This is the sentence I want you to write down:
The price you pay is permanent. The NOI you inherit is not.
The price you agree to on day one is locked in. You cannot go back and renegotiate it when the numbers do not pan out. But the NOI is not fixed. It can go up and it can go down, and the seller has every incentive to show you the version where it goes up.
Your job before you make an offer is to figure out what the NOI actually looks like under your ownership, with your costs, your management structure, and your debt. Not the seller’s version. Yours.
That reconstructed NOI is the number that tells you if you are overpaying. And it is the only number that matters.
If you want help rebuilding the numbers on a deal you are looking at before you make an offer, that is exactly what I do – Acquisition Underwriting for RV parks. Reach out at pvifinancial.com before you sign anything.
~Wendi | Fractional CFO | PVIFinancial.com
If you liked this, read this next “What is NOI and How to Find the Real Number in an Acquisition”
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