Operating Expenses & Reserves in Property Valuation


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In a leased office building where the potential gross annual income is $500,000, the vacancy rate is 3%, and operating expenses total $75,000, what would the effective gross income be?

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1. In calculating the net operating income of a property, operating expenses are subtracted from the effective gross income . Those operating expenses include fixed expenses, variable expenses and _____.

2. It is necessary to estimate the life span of carpeting, appliances, and kitchen and bathroom cabinets and any other component that will experience wear and tear so that monies can be put aside each year to replace them with new. This operating expense would be considered _____

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About This Quiz & Worksheet

This interactive quiz and printable worksheet will test you on your knowledge of property valuation. You will be asked to solve problems related to calculating gross income, net operating income, and more.

Quiz & Worksheet Goals

The questions will test you on these topics:

  • Calculating the effective gross income for an office building
  • What operating expenses are considered when calculating net operating income
  • How recurring yearly operating expenses related to wear and tear are classified
  • Classification of expenses unrelated to the operation of a property
  • The type of investment property that includes property taxes, utilities, and the cost of goods as part of the operating expenses

Skills Practiced

The resources let you practice these skills:

  • Knowledge application - use your knowledge to answer questions about classifying investment properties
  • Problem solving - use acquired knowledge to solve a effective gross income operating expenses practice problems
  • Critical thinking - apply relevant concepts to examine information about operating expenses in a different light

Additional Learning

Read the accompanying lesson Operating Expenses & Reserves in Property Valuation to learn more about this topic. Topics covered include:

  • Operating expenses for different property types
  • The formula for calculating for operating expenses
  • Examples of reserves
  • Types of expenses