Which pair belongs on a reconstructed operating statement, properly classified?
Correct Answer
B) Property tax as fixed; snow removal as variable
Why this is correct: In a reconstructed operating statement, property tax is a fixed expense (doesn't vary with occupancy), while snow removal is a variable expense (can vary with use and weather). Why the other choices are wrong: Depreciation as fixed; principal as variable is wrong because depreciation and principal are not operating expenses. Income tax as variable; points as fixed is incorrect; income tax is non-operating, and points are financing costs. Loan interest as fixed; capital additions as reserves is wrong; interest is non-operating, and capital additions are not reserves. Exam tip: Only operating expenses belong in NOI; exclude financing, depreciation, and income taxes.
Why This Is the Correct Answer
Why this is correct: In a reconstructed operating statement, property tax is a fixed expense (doesn't vary with occupancy), while snow removal is a variable expense (can vary with use and weather). Why the other choices are wrong: Depreciation as fixed; principal as variable is wrong because depreciation and principal are not operating expenses. Income tax as variable; points as fixed is incorrect; income tax is non-operating, and points are financing costs. Loan interest as fixed; capital additions as reserves is wrong; interest is non-operating, and capital additions are not reserves. Exam tip: Only operating expenses belong in NOI; exclude financing, depreciation, and income taxes.
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Previous Question
An appraiser is valuing a retail plaza subject to a 20-year triple net lease with 12 years remaining. The contract rent is $24 per square foot annually, while current market rent for comparable space is $18 per square foot. The leased fee interest is being appraised for estate tax purposes. Which statement is correct regarding the income approach?
Next Question
A medical office building is leased to a physician group under a 12-year lease with rent set at $24.00/sf/year, escalating 3% annually. Market rent for similar space is currently $26.50/sf/year and is projected to grow at 2.75% annually. The appraiser calculates the present value of the rent differential (market minus contract) over the lease term at a 7.5% discount rate and arrives at $1,024,000. What does this figure represent?