Net operating income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property, minus all reasonably necessary operating expenses.
The NOI is calculated as:
[tex]NOI=RR-OE[/tex]
where:
[tex]\begin{gathered} RR=\text{ Real Estate Revenue} \\ OE=\text{ Operating Expenditure} \end{gathered}[/tex]
Let us determine the revenue and expenditure.
Revenue:
There are 7 office suites, each with a potential annual rent of $9,000 each. Therefore, the total potential income on rent is:
[tex]7\times9000=63,000[/tex]
The revenue from the vending machine is $3,000.
Hence,
[tex]RR=63000+3000=66000[/tex]
Expenditure:
The vacancy is 8% of the expected rent. This is calculated to be:
[tex]\frac{8}{100}\times63000=5040[/tex]
Annual expenses are $25,000.
Hence,
[tex]OE=5040+25000=30040[/tex]
NOI:
Therefore, the NOI is calculated to be:
[tex]\begin{gathered} NOI=66000-30040 \\ NOI=35960 \end{gathered}[/tex]
The NOI is $35,960.
The SECOND OPTION is correct.
