Texas Property Tax Consultant Practice Exam

In property evaluations, which type of income is typically included in the net operating income calculation?

1. Rental income

2. Operational expenses

3. Tax liabilities

4. Capital expenses

The correct answer is: Rental income

In property evaluations, net operating income (NOI) is a key metric that represents the income generated from a property after deducting operating expenses but before accounting for financing costs and tax liabilities. Rental income is typically the primary source of income considered when calculating NOI. This income includes all revenue generated from leasing the property to tenants, such as monthly rent payments and potentially other income sources like parking fees or service charges. Operational expenses, which are related to the regular maintenance and management of the property, are subtracted from this rental income to compute the NOI. However, they are not included as part of the income calculation itself. Tax liabilities and capital expenses are also not part of the NOI calculation; tax liabilities are typically considered in a separate financial analysis while capital expenses pertain to long-term improvements or repairs that enhance the property's value rather than its operating income. Thus, the correct choice reflects the core element of the income from which the NOI is derived.