Property Valuation
Under the income approach, Wisconsin appraisers calculate net operating income by:
AAdding all expenses to gross income
BSubtracting operating expenses (but not debt service) from effective gross income✓ Correct
CSubtracting mortgage payments from gross income
DDividing gross income by the cap rate
Explanation
NOI = Effective Gross Income minus Operating Expenses (excluding debt service/mortgage payments). NOI is a pre-financing measure of a property's income.
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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.
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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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