Which item is properly excluded when computing net operating income?
Correct Answer
B) Mortgage debt service on the existing loan
Why this is correct: Net Operating Income (NOI) reflects the property's operating performance independent of ownership or financing. Mortgage debt service is a financing cost, not an operating expense, and is excluded from NOI. Why the other choices are wrong: "The annual property insurance premium" is an operating expense included in NOI. "A reserve allowance for roof replacement" is a reserve for replacements, an operating expense included in NOI. "The off-site management company's fee" is an operating expense included in NOI. Exam tip: NOI excludes financing costs (debt service) and owner's income taxes.
Why This Is the Correct Answer
Why this is correct: Net Operating Income (NOI) reflects the property's operating performance independent of ownership or financing. Mortgage debt service is a financing cost, not an operating expense, and is excluded from NOI. Why the other choices are wrong: "The annual property insurance premium" is an operating expense included in NOI. "A reserve allowance for roof replacement" is a reserve for replacements, an operating expense included in NOI. "The off-site management company's fee" is an operating expense included in NOI. Exam tip: NOI excludes financing costs (debt service) and owner's income taxes.
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Previous Question
An appraiser is analyzing a 50-unit apartment building. Market research indicates a stabilized vacancy and collection loss rate of 6%. The property's current occupancy is 98%, with all tenants in good standing. For the purpose of stabilizing the income stream in the direct capitalization model, the appraiser should apply the
Next Question
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will: