Q:
An appraiser forms the following estimates for a rental property:
Full Capacity Rental Income
$800,000
Utilities
25,000
Repairs
40,000
Property Insurance
30,000
Property Taxes
27,000
Management Fees
50,000
Capital Expenditure Allowance
22,000
Interest Expense
32,000
Tax Rate
30%
Vacancy and Collection Losses
7%

Which of the following is the correct figure for this property's net operating income?
a) $362,600
b) $518,000
c) $385,000
d) $550,000
A:

The correct answer is: d)

Potential Rental Income
800,000
Less: Vacancy and Collection Losses (7%)
56,000
Effective Gross Income
744,000
Less Operating Expenses:
  Utilities
25,000
  Repairs
40,000
  Property Insurance
30,000
  Property Taxes
27,000
  Management Fees
50,000
  Capital Expenditure Allowance  
22,000
Net Operating Income 550,000

"C" is incorrect as taxes are not included in net operating income.


RELATED FAQS

  1. Under the Income Capitalization approach to valuing real estate, which of the following ...

    The correct answer is: d) When valuing an entire property, and not just the equity portion in the property, we have to discount ...
  2. What do real estate investors look for in a property?

    Profit from real estate investments by either flipping homes or becoming a landlord. Learn best practices for a successful ...
  3. How is Net Operating Income (NOI) used in real estate?

    Find out more about net operating income, what it measures and how it is used to analyze a real estate property's return.
RELATED TERMS
  1. Income Approach

    A real estate appraisal method that allows investors to estimate ...
  2. Income Property Mortgage

    A loan given to an investor to purchase a residential or commercial ...
  3. IRS Publication 527 - Residential Rental Property (Including Rental of Vacation Homes)

    A document published by the Internal Revenue Service (IRS) that ...
  4. Earning Assets

    An income-producing investment that is owned by a business, institution ...
  5. Form 4797

    A tax form distributed by the Internal Revenue Service (IRS) ...
  6. Property Management

    The administration of residential, commercial and/or industrial ...
Trading Center