Property Valuation
In the income approach, 'operating expenses' typically include all of the following EXCEPT:
AProperty taxes
BDebt service (mortgage payments)✓ Correct
CProperty management fees
DInsurance premiums
Explanation
In the income approach, NOI is calculated before debt service. Mortgage payments (debt service) are financing costs, not operating expenses.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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