Question

Using the following information, compute net operating income ( NOI ) for the first year of operations. Use an “above-line” treatment of capital expenditures.

• Number of apartments: 10
• Rent per month per apartment: $800
• Expected vacancy and collection loss: 5 percent
• Annual maintenance: $12,000
• Annual depreciation: $6,000
• Property taxes: $4,000
• Property insurance: $5,000
• Management: $6,000
• Capital expenditures: $5,000
• Income taxes: $9,000
• Other operating expenses: $3,000
• Annual mortgage debt payments: $14,000

a)

$27,200

b)

$41,200

c)

$47,200

d)

$50,200

e)

$56,200

Answer 1

Net operating income
Potential Gross Income (PGI) [10 apartments x 12 months x $800 per month]	96000.00
less : Vacancy and collection losses [5% of 96000]	(4800.00)
Effective Gross Income (EGI)	91200.00
Less : Annual maintenance	(12000.00)
Annual depreciation	(6000.00)
Property tax	(4000.00)
Property insurance	(5000.00)
Management	(6000.00)
Capital expenditure	(5000.00)
Income tax	(9000.00)
Other operating expenses	(3000.00)
Annual mortgage Debt payment	(14000.00)
Net Operating Income for first Year	27200.00