Net operating income is used in value calculations and is defined as gross income minus which type of expenses?

• A. Debt service
• B. Operating expenses
• C. Income taxes
• D. Repairs only

Answer: (D)

The main idea being tested is what net operating income subtracts from gross income. NOI represents the income a property generates from its operations after paying the ongoing operating costs, and it is calculated as gross income minus operating expenses. It does not subtract debt service (financing payments) or income taxes, and it does not exclude other operating costs like repairs. In other words, repairs are one part of operating expenses, but NOI accounts for all operating expenses, such as maintenance, property management, insurance, property taxes, and utilities paid by the owner. That broader subtraction is why “repairs only” isn’t the correct descriptor for NOI.