Florida Real Estate Broker ExaminationReal Estate CalculationsEasy
A property has an effective gross income of $90,000 and total operating expenses of $30,000. The annual debt service is $25,000. What is the net operating income (NOI) for this property?
- A$65,000
- B$90,000
- C$35,000
- D$60,000
Show answer & explanationAnswer & explanation
Correct answer: D. $60,000
Net Operating Income (NOI) is calculated as Effective Gross Income minus Operating Expenses. Debt service is not included in NOI. So, $90,000 - $30,000 = $60,000.
Why the other options are wrong
- A. This incorrectly adds debt service to NOI calculation, or other error.
- B. This is the Effective Gross Income, not the Net Operating Income.
- C. This incorrectly subtracts debt service from the NOI.
Net Operating Income (NOI)
Net Operating Income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments, representing the annual income generated by a property after deducting all necessary operating expenses.
- Formula: Effective Gross Income - Operating Expenses.
- Does NOT include debt service, capital expenditures, or income taxes.
- A key metric for property valuation using capitalization rates.
Memory trick: Effective minus expenses, net income commences!