California Real Estate Practice Exam

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Master the California Real Estate Exam with our comprehensive practice quiz. Get expert tips, detailed content review, and insider strategies to pass on your first try.

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Net operating income does not include?

Rental income
Tax expenses
Mortgage payments
Utilities costs

The correct answer is: Mortgage payments

Net operating income, also known as NOI, is a measure of a property's profitability and is calculated by subtracting operating expenses from effective gross income. Rental income is a part of effective gross income, and long-term leases can provide a consistent cash flow for the property. Tax expenses are operating expenses that are also included in NOI and can include property taxes, income taxes, and other taxes related to the property. Utilities costs, such as water, electricity, and gas, are also operating expenses that are factored into NOI. The only incorrect option is C, mortgage payments, which are not considered operating expenses and are therefore not included in the calculation of NOI. Instead, mortgage payments are considered a financing cost and are subtracted from NOI to determine the property's cash flow or net cash flow.