Property Valuation
A property's gross income minus operating expenses, before mortgage payments and income taxes.
Net operating income is calculated by subtracting operating expenses from effective gross income. Operating expenses include property taxes, insurance, maintenance, management fees, and utilities, but NOT mortgage payments (debt service), capital expenditures, or income taxes. NOI is the key figure in the income approach to valuation (Value = NOI ÷ Cap Rate) and is used to evaluate the financial performance of investment properties.
Exam Tip
NOI = Gross Income - Vacancy - Operating Expenses. Mortgage payments are NOT operating expenses — do not subtract them when calculating NOI.
Study Guide
Property Valuation
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NY Real Estate Property Valuation
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