Question

An investor is considering the purchase of a small office building. The Gross Potential Rental Income is $250,000. Estimated Vacancy is 5%. Insurance Costs are $10,000. Real Estate Taxes are $8,000. Federal Tax Depreciation is $10,000. Compute NOI.

		207,500
		197,500
		187,500
		None of the above

Answer 1

Net operating income refers to the operating profits generated by the property deducting all the expenses from the income.

Net Operating Income = Gross Potential Rental Income - Vacancy - Operating Expenses

Operating expenses includes real estate taxes, depreciation, and Insurance costs etc.

So, Net Operating Income = 250,000 - (5% * 250000) - 10,000 - 8,000 - 10,000

= 250,000 - 12,500 - 28,000

= $209,500

Therefore, The Net Operating income from the property is 209,500.