A building has a PGI of $700,000, and the EGI is $650,000. Here is a list of the building's annual expenses: building management of $15,000, mortgage payments of $80,000, lawn maintenance of $2,000, replacement reserves of $7,000, and repairs and unit maintenance of $4,200. What is the NOI?

Rationale

$628,800 is the Net Operating Income (NOI) for the building.

To calculate the Net Operating Income (NOI), we subtract total annual expenses from the Effective Gross Income (EGI). The EGI of $650,000 minus the total expenses ($21,200) gives us the NOI of $628,800.

A ($721,200) YOUR ANSWER

This option incorrectly suggests an NOI higher than the EGI, which is not possible since NOI is derived by deducting expenses from EGI. Therefore, this figure does not reflect the necessary subtraction of costs incurred by the building.

B ($628,800) CORRECT

This is the correct calculation for the NOI. By taking the EGI of $650,000 and subtracting the total annual expenses of $21,200 (building management, mortgage payments, lawn maintenance, replacement reserves, and repairs), we arrive at an NOI of $628,800.

C ($541,800) YOUR ANSWER

This option reflects a miscalculation of expenses or EGI. If one were to incorrectly subtract a larger amount or misinterpret the components of the expenses, it could lead to this erroneous result. However, the correct expenses yield a higher NOI than this amount.

D ($50,000) YOUR ANSWER

This figure is far too low to be a realistic NOI for the building. It may imply that only a small portion of the expenses were considered, or that the EGI was grossly underestimated. The actual calculation shows a much higher NOI when all expenses are accurately accounted for.

Conclusion

The Net Operating Income (NOI) is a crucial financial metric representing the income generated by an investment property after deducting operating expenses. In this case, the NOI of $628,800 accurately reflects the Effective Gross Income minus the total annual expenses, confirming its importance in assessing the property's profitability. Understanding NOI is essential for real estate investment analysis and management.

A building has a PGI of $700,000, and the EGI is $650,000. Here is a list of the building's annual expenses: building management of $15,000, mortgage payments of $80,000, lawn maintenance of $2,000, replacement reserves of $7,000, and repairs and unit maintenance of $4,200. What is the NOI?

$628,800 is the Net Operating Income (NOI) for the building.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test