Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentEasy
A real estate investor is analyzing a potential income-producing property. The property has a gross annual income of $150,000, operating expenses of $60,000, and annual debt service of $40,000. What is the property's Net Operating Income (NOI)?
- A$110,000
- B$50,000
- C$90,000
- D$150,000
Show answer & explanationAnswer & explanation
Correct answer: C. $90,000
Net Operating Income (NOI) is calculated by subtracting operating expenses from the gross annual income. Debt service is not included in the NOI calculation.
Why the other options are wrong
- A. This is likely calculated by subtracting debt service from gross income, ignoring operating expenses.
- B. This incorrectly subtracts debt service from the NOI.
- D. This is the gross annual income, not the Net Operating Income.
Net Operating Income (NOI)
A measure used to calculate the profitability of income-generating real estate, equal to total revenue minus operating expenses.
- Excludes debt service (mortgage payments).
- Excludes capital expenditures.
- A key input for capitalization rate calculations.
Memory trick: NOI: Income minus the 'O'pera of expenses, not the 'D'ebt drama.