Shafiq Hirani CCIMReal Estate Advisor, REMAX Distinctive · Real Estate Advisor at RE/MAX Distinctive Commercial | Washington, DC | Your Guide To Profitable Real Estate Ventures

Unlock Building Value: NOI, Cap Rate, & NOI Haircut Explained #shorts

8 May 2026 · 1 min

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In this short instructional video, the speaker explains that a building’s market value is driven by two primary financial metrics: Net Operating Income (NOI) and the capitalization (cap) rate. Raising NOI or achieving a lower cap rate can substantially increase a property’s value. The speaker then introduces a third, often‑overlooked factor called the “NOI haircut,” which occurs when lenders or buyers adjust the reported NOI—typically by discounting certain income items—to align with their underwriting standards. This adjustment reduces the effective NOI used in the valuation formula, thereby lowering the building’s perceived value, even if the property’s actual performance is solid.

Chapters

Value is determined by 2 factors. NOI and cap rate impacts the value. Improving both impacts the value of the building can be substantial. Before we under— understand income through NOI, how the market prices that income through cap rate, but there is one more area that constantly surprises owners, and that's the 4th area. the NOI haircut. It is what happens when lenders and buyers start adjusting the numbers. This is where most owners get surprised, not because the building is bad, but because their numbers are not presented the way lenders and buyers expect. I call this the NOI haircut. It is where value gets reduced.