Which item is not included in net operating income (NOI) calculations?

Which item is not included in net operating income (NOI) calculations?

• A. Debt service
• B. Vacancy
• C. Operating expenses
• D. Potential gross income

Answer: (B)

Net operating income shows how much income a property generates from its operations, before financing costs. You start with Potential Gross Income, then subtract what you lose to vacancies and credit losses to get Effective Gross Income, and finally subtract Operating Expenses to arrive at NOI. Financing costs like debt service are not part of NOI; they occur after NOI to determine cash flow after financing. So, debt service is the item not included in NOI calculations. For example, if PGI is 100,000, vacancies are 5,000, and operating expenses are 40,000, NOI would be 55,000. If debt service is 25,000, cash flow after debt service would be 30,000.

Net operating income shows how much income a property generates from its operations, before financing costs. You start with Potential Gross Income, then subtract what you lose to vacancies and credit losses to get Effective Gross Income, and finally subtract Operating Expenses to arrive at NOI. Financing costs like debt service are not part of NOI; they occur after NOI to determine cash flow after financing. So, debt service is the item not included in NOI calculations. For example, if PGI is 100,000, vacancies are 5,000, and operating expenses are 40,000, NOI would be 55,000. If debt service is 25,000, cash flow after debt service would be 30,000.