In valuing properties, what do operating expenses reduce from?

Operating expenses reduce Gross Income when valuing properties. Gross Income refers to the total income generated by a property before any costs are subtracted, which includes rent and other income sources. Operating expenses such as maintenance, property management fees, taxes, insurance, and utility costs are necessary expenditures that a property owner must incur to maintain and operate the property effectively.

By subtracting these operating expenses from Gross Income, you arrive at a figure known as Net Operating Income (NOI). This figure is critical in property valuation since it provides a clearer view of a property's profitability after accounting for the ongoing costs required to operate it. Understanding this distinction helps in accurately assessing the value of a property, as it reflects the actual income that an investor can expect to earn from it.