A property management company is overseeing an apartment building with 100 units. The annual gross potential rental income is $1,500,000. Vacancy and credit losses are projected at 5%. Operating expenses, including property taxes and insurance, are $450,000 annually. Debt service for the mortgage is $300,000 annually. What is the annual Net Operating Income (NOI) for this property?

Question: A property management company is overseeing an apartment building with 100 units. The annual gross potential rental income is $1,500,000. Vacancy and credit losses are projected at 5%. Operating expenses, including property taxes and insurance, are $450,000 annually. Debt service for the mortgage is $300,000 annually. What is the annual Net Operating Income (NOI) for this property?

Answer options: ✅ $675,000

• $700,000
• $750,000
• $1,050,000

Correct answer: $675,000

Explanation: Gross Potential Income = $1,500,000. Vacancy and credit loss = $1,500,000 * 0.05 = $75,000. Effective Gross Income (EGI) = $1,500,000 - $75,000 = $1,425,000. Net Operating Income (NOI) = EGI - Operating Expenses = $1,425,000 - $450,000 = $975,000. This example uses debt service as a distractor which is not included in NOI.