Which is a variable expense in an apartment operating statement?
Correct Answer
C) Utilities paid by the landlord
Why this is correct: Variable expenses change with occupancy or usage. Utilities paid by the landlord fluctuate based on tenant consumption and occupancy levels. Why the other choices are wrong: "Property insurance premiums" are fixed expenses, typically constant regardless of occupancy. "Real estate taxes on the property" are fixed by the taxing authority. "Mortgage interest on the loan" is a financing cost, not an operating expense for NOI calculation. Exam tip: Remember that NOI excludes financing costs; variable expenses change with occupancy, fixed expenses do not.
Why This Is the Correct Answer
Why this is correct: Variable expenses change with occupancy or usage. Utilities paid by the landlord fluctuate based on tenant consumption and occupancy levels. Why the other choices are wrong: "Property insurance premiums" are fixed expenses, typically constant regardless of occupancy. "Real estate taxes on the property" are fixed by the taxing authority. "Mortgage interest on the loan" is a financing cost, not an operating expense for NOI calculation. Exam tip: Remember that NOI excludes financing costs; variable expenses change with occupancy, fixed expenses do not.
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A GRM built from monthly rents cannot be applied to annual rent because:
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A 12-unit apartment building has a potential gross income of $120,000, comprised entirely of market rents. The market vacancy rate is 4%, but the subject's historical vacancy and collection loss over the past three years has averaged 9%. When developing an opinion of market value using the income approach, which vacancy rate should the appraiser use to estimate Effective Gross Income?