What is deducted from gross revenues when calculating net operating income (NOI)?

Net Operating Income (NOI) is a key performance metric in real estate that measures a property's ability to generate income from operations. To calculate NOI, you start with gross revenues generated by a property, which may include rental income and other fees. From this amount, you deduct annual operating expenses and expected losses from vacancies, which provide a clearer picture of the property's operational profitability.

Annual operating expenses include costs such as property management fees, utilities, repairs and maintenance, and insurance—essentially, all expenses that are necessary to maintain the property's operation. Expected losses from vacancies account for the potential income that is not collected due to unoccupied units or negative tenant turnover. By considering both of these factors, you arrive at the net operating income, which reflects the actual income that can be anticipated from the property’s performance.

The other options do not accurately reflect the elements deducted from gross revenues in this context. Taxes and interest rates, for instance, are not included in the calculation of NOI as they are considered financing costs rather than operational costs. Insurance and maintenance costs, while relevant to operating expenses, do not encapsulate the entirety of deductions necessary for calculating NOI. Lastly, capital appreciation relates to the increase in property value over time and is not factored into NOI