54. A building has a PGI of $700,000, and the EGI is $650,000. Here is a list of the building's annual expenses: building management of $15,000, mortgage payments of $80,000, lawn maintenance of $2,000, replacement reserves of $7,000, and repairs and unit maintenance of $4,200. What is the NOI?
Answer: B
The Net Operating Income (NOI) is $628,800.
To calculate the NOI, we subtract the total annual expenses from the Effective Gross Income (EGI). In this case, the EGI is $650,000, and the total expenses amount to $21,200, leading to an NOI of $628,800.
A) $721,200
This option is incorrect because it does not reflect the subtraction of expenses from the Effective Gross Income. If we assume a figure like this, it suggests a misunderstanding of how to calculate NOI, as it implies that expenses were not accounted for.
B) $628,800
This is the correct option. To arrive at this figure, we first determine the total annual expenses, which are $15,000 (management) + $80,000 (mortgage) + $2,000 (lawn maintenance) + $7,000 (replacement reserves) + $4,200 (repairs), totaling $108,200. Subtracting these expenses from the EGI of $650,000 gives us an NOI of $628,800.
C) $541,800
This option is incorrect because it appears to reflect a miscalculation in either the total expenses or the EGI. The calculation does not align with the provided figures, as subtracting the total expenses from the EGI does not yield this result.
D) $50,000
This option is incorrect due to a significant underestimation of the NOI. It fails to take into account the substantial EGI and the actual expenses, which when calculated correctly, result in a much higher NOI than $50,000.
Conclusion
The correct answer, $628,800, accurately reflects the calculation of NOI by subtracting the total expenses from the EGI. All other options fail to correctly apply the formula or misinterpret the figures, leading to incorrect conclusions about the building's financial performance.