Ontario Real Estate Licensing Exam Practice · Question
In a commercial real estate transaction, what is the significance of a 'net operating income (NOI)' calculation for a potential buyer?
Net Operating Income (NOI) is a key metric in commercial real estate. It represents the property's gross income less all operating expenses, but critically, it
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Question: In a commercial real estate transaction, what is the significance of a 'net operating income (NOI)' calculation for a potential buyer?
Answer options:
- It represents the total revenue generated by the property before deducting any expenses. ✅ It is the property's gross income minus all operating expenses, but before debt service and income taxes.
- It measures the overall profitability of the property after all capital expenditures and financing costs.
- It indicates the amount of cash flow available to the owner after all expenses, including mortgage payments.
Correct answer: It is the property's gross income minus all operating expenses, but before debt service and income taxes.
Explanation: Net Operating Income (NOI) is a key metric in commercial real estate. It represents the property's gross income less all operating expenses, but critically, it excludes debt service (mortgage payments) and income taxes. This provides a clear picture of the property's income-generating capability before financing decisions.
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