An exercise gives $36,000 effective gross income, $12,000 operating expenses and $18,000 annual loan principal and interest. Which amounts should I subtract to calculate net operating income?
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For the stated exercise, subtract operating expenses from effective gross income: $36,000 - $12,000 = $24,000 NOI. Assume the $12,000 includes all operating deductions specified by the problem.
The owner's loan principal and interest are debt service, not an additional property operating expense in this NOI calculation. Deducting the $18,000 after NOI leaves $6,000 of simplified cash flow before other items. That is a different measure; it is not the number to substitute for NOI in a question that expressly asks for NOI.
Do not confuse the owner's income taxes with the property's real estate taxes. Property taxes can be an operating expense under the stated valuation assumptions; the owner's income taxes and financing are separate. Check the exact conventions in your question. Work the full sequence in our NOI worksheet, then review the investment study guide.
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