Practice Of Real Estate And Real Estate Calculations Practice Test

Which expenses are subtracted from gross operating income to compute net operating income (NOI) for an income property?

Operating expenses such as property management, maintenance, repairs, taxes, insurance, and utilities paid by owner; exclude debt service and depreciation Debt service and depreciation Taxes only Mortgage payments

Correct Answer:

Operating expenses such as property management, maintenance, repairs, taxes, insurance, and utilities paid by owner; exclude debt service and depreciation

Explanation:

Net operating income shows how much income a property generates from its normal operations after the costs to operate it. To arrive at NOI, you subtract only the operating expenses from gross operating income. Those operating expenses are the costs necessary to keep the property running on a day‑to‑day basis—things like property management, maintenance and repairs, property taxes, insurance, and utilities paid by the owner. Financing costs (debt service or mortgage payments) and non‑cash accounting items (depreciation) are not part of NOI. They affect cash flow after NOI and taxes, but not the operating performance captured by NOI.

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