Property Valuation
An operating expense for an investment property that is NOT included when calculating NOI is:
AProperty management fees
BMortgage payments (debt service)✓ Correct
CProperty insurance
DProperty taxes
Explanation
NOI is calculated before debt service (mortgage payments). Mortgage payments reflect financing decisions and are not included in NOI.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
1031 ExchangeA tax-deferred exchange allowing investors to sell one investment property and reinvest proceeds in a like-kind property while deferring capital gains taxes.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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