Certified Residential Appraiser Practice Exam

What is the term for expected income after considering total mortgage and fixed expenses?

1. Safe Rate

2. Yield Rate

3. Net Operating Income

4. Reversion

The correct answer is: Net Operating Income

The term for expected income after accounting for total mortgage and fixed expenses is referred to as Net Operating Income (NOI). This measure is crucial in real estate appraisal and investment analysis as it represents the income generated by a property after operating expenses have been deducted but before mortgage payments and taxes are considered. Understanding NOI is fundamental for appraisers and investors because it provides a clear picture of the property's operational performance. It is calculated by subtracting all operating expenses, such as maintenance, property management, insurance, and property taxes, from the gross income generated by the property. The remaining income, the Net Operating Income, helps assess the viability of an investment and is often used to determine the value of a property through various valuation methods, including the income approach. In contrast, other terms do not capture this specific metric. The Safe Rate typically refers to a type of return on investment that implies a low risk but does not consider the operating expenses of a property. The Yield Rate is generally associated with investment returns, reflecting the income return on an investment relative to its cost but does not directly factor in the operating expenses. Reversion, on the other hand, pertains to the eventual return of property rights back to the original owner, typically in the context of leasehold or