To derive net operating income, what should be deducted from Annual Gross Income?

To derive net operating income (NOI), annual operating expenses need to be deducted from annual gross income. The net operating income is a crucial metric in real estate investment as it provides insight into the profitability of a property before financing and tax considerations.

Annual gross income represents the total income generated from the property, including rental income and any other income sources. To calculate the NOI, you first account for all the operating expenses necessary to manage and maintain the property. These operating expenses typically include property taxes, insurance, repairs, maintenance, utilities, and property management fees, among others. By subtracting these expenses from the gross income, you arrive at the net operating income, which reflects the actual income from the property that is available to cover financing costs and generate returns.

Interest payments and property management fees are specific costs; however, interest payments are not included in NOI calculations since they relate to financing rather than property operation. Total revenue does not accurately represent the concept of NOI as it may include other income that isn’t part of operating expenses. Thus, focusing on annual operating expenses ensures a clear picture of operational profitability.