Income Approach

The Income Approach is primarily used to value:

• Owner-occupied residences

• Rental properties and income-producing real estate

• Vacant land

• Newly constructed homes

Which of the following is not part of operating expenses when calculating Net Operating Income (NOI)?

• A) Property Taxes

• B) Insurance

• C) Mortgage Payments

• D) Maintenance Costs

What is the correct formula for calculating Net Operating Income (NOI)?

• Gross Income – Mortgage Payments

• Effective Gross Income – Operating Expenses

• Gross Rent – Depreciation – Taxes

• Total Revenue – Capital Expenditures

A rental property has a monthly gross rent of $2,500. If similar properties in the area sell for 10 times their annual gross rent, what is the estimated value of the property?

• $250,000

• $300,000

• $400,000

• $500,000

What is the correct formula for calculating Effective Gross Income (EGI)?

• PGI - Operating Expenses

• PGI - Vacancy and Collection Losses

• PGI - Taxes - Insurance - Maintenance

• NOI + Depreciation

T/F: Depreciation and mortgage payments are subtracted when calculating NOI.

• True

• False

True or False: NOI is used to determine a property’s value using the Income Approach.

• True

• False

True or False: A higher NOI generally increases the estimated value of an income-producing property.

• True

• False

Reducing vacancy and collection losses can improve NOI.

• True

• False

True or False: NOI accounts for both operating and capital expenditures.

• True

• False