Before you read
Test yourself first: 5 questions
Question 1 of 5
A property has potential gross income of $100,000, a vacancy and collection loss of 5%, and operating expenses of $40,000. What is the net operating income?
Answer: B. Effective gross income is $100,000 minus 5% ($5,000) = $95,000; subtracting $40,000 in operating expenses leaves an NOI of $55,000.
Question 2 of 5
Net operating income (NOI) is best calculated as:
Answer: B. NOI equals effective gross income (potential income less vacancy and collection losses) minus operating expenses; it excludes debt service (mortgage payments) and depreciation.
Question 3 of 5
A building has potential gross income of $100,000, vacancy and collection losses of $5,000, and operating expenses of $35,000. What is the NOI?
Answer: B. Effective gross income = $100,000 - $5,000 = $95,000; NOI = $95,000 - $35,000 = $60,000.
Question 4 of 5
Net operating income (NOI) is calculated as effective gross income minus which of the following?
Answer: A. NOI subtracts operating expenses from effective gross income; debt service (mortgage payments) and income taxes are not deducted to arrive at NOI.
Question 5 of 5
Which of the following expenses would be deducted from effective gross income when calculating NOI?
Answer: B. Operating expenses such as management fees, insurance, maintenance, and property taxes are deducted to arrive at NOI; debt service, income taxes, and book depreciation are not.
Keep the streak going with more questions like these, each with a full rationale.
What you need to know
Operating expenses include taxes, insurance, management, maintenance, utilities, and reserves for replacement — but NEVER debt service, income taxes, or depreciation, the three trick inclusions examiners love. NOI ÷ cap rate = value. If a question sneaks mortgage payments into expenses, strip them out before solving.
Vacancy, Effective Gross & Operating Expenses: FAQs
Is Vacancy, Effective Gross & Operating Expenses on the real estate exam?
Yes. Valuation & Appraisal is a scored domain on the real estate licensing exam, and this topic appears in the national portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
