Arizona Real Estate License Practice Exam

When appraising a multifamily property, the primary focus is on net operating income (NOI). NOI represents the total income generated from the property minus the operating expenses, excluding mortgage payments, taxes, and depreciation. This measure is essential because it provides a clearer picture of the property's profitability and financial performance.

An appraiser evaluates the income potential of a multifamily property, considering factors such as rental rates, occupancy levels, and operational costs. By analyzing net operating income, appraisers can assess how much money the property actually generates after accounting for the costs necessary to keep it running.

Gross rental income is the total income before any expenses are deducted, and while it is an initial metric considered in the appraisal process, it does not provide the complete picture of the property's economic health. Capital gain income refers to the profits made from selling the property rather than the operational income generated during its ownership. Passive income might be relevant to investors but is not the specific metric used in the appraisal of multifamily properties. Thus, net operating income is the most accurate and relevant measure when evaluating the financial viability of a multifamily real estate investment.