New York Real Estate Salesperson ExaminationReal Estate CalculationsMedium
A rental property generates $2,500 in gross monthly income. The operating expenses are 35% of the gross income. The property owner has a mortgage payment of $1,200 per month. What is the property's monthly net operating income (NOI)?
- A$2,500
- B$1,625
- C$475
- D$1,300
Show answer & explanationAnswer & explanation
Correct answer: B. $1,625
First, calculate the operating expenses: $2,500 * 0.35 = $875. Then, subtract the operating expenses from the gross monthly income to find the NOI: $2,500 - $875 = $1,625. The mortgage payment is not included in NOI.
Why the other options are wrong
- A. This is the gross monthly income, not NOI.
- C. This incorrectly subtracts both operating expenses and mortgage from gross income.
- D. This incorrectly subtracts operating expenses from gross income.
Net Operating Income (NOI)
A calculation used to analyze the profitability of income-generating real estate investments before the impact of debt service and income taxes.
- Calculated as Gross Operating Income minus Operating Expenses.
- Does NOT include mortgage payments (debt service).
- A key metric for property valuation and investment analysis.
Memory trick: Gross income first, then subtract operating expenses, no thirst for debt.