Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentEasy
A Florida real estate investor is considering a commercial property that generated $150,000 in gross annual income. Operating expenses for the year were $60,000, and debt service was $40,000. What is the property's Net Operating Income (NOI)?
- A$90,000
- B$50,000
- C$150,000
- D$110,000
Show answer & explanationAnswer & explanation
Correct answer: A. $90,000
Net Operating Income (NOI) is calculated by subtracting operating expenses from gross annual income. Debt service is not included in the NOI calculation.
Why the other options are wrong
- B. This incorrectly subtracts both operating expenses and debt service.
- C. This represents the gross annual income before any expenses are deducted.
- D. This incorrectly subtracts debt service from gross income, but not operating expenses.
Net Operating Income (NOI)
A measure used to calculate the profitability of income-generating real estate investments before the impact of financing and taxes.
- Calculated as Gross Income - Operating Expenses.
- Does NOT include debt service, depreciation, or income taxes.
- Used in capitalization rate calculations and valuation.
Memory trick: NOI: No Other Income, just Gross minus Operating.