Property Management
What is 'net operating income' (NOI) in property management and why is it the key financial metric?
AGross income minus mortgage payments
BEffective gross income minus operating expenses (before debt service), representing the income available to service debt and return on investment✓ Correct
CGross income minus all expenses including depreciation
DNet income after all taxes and depreciation
Explanation
NOI = Effective Gross Income (EGI) minus Operating Expenses. It excludes debt service (mortgage payments) and income taxes, making it comparable across properties with different financing.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
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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