What formula is used to determine net operating income (NOI)?

Net Operating Income (NOI) is a key metric used in real estate to assess the income generated by a property after all operating expenses have been deducted from effective gross income (EGI). The correct method to calculate NOI involves subtracting operating expenses from EGI, which includes all revenues generated from the property after accounting for vacancy and credit loss, but before deducting debts and taxes.

In this context, effective gross income represents the total income expected from the property after factoring in vacancy rates and collection losses, reflecting a more accurate representation of potential income. By subtracting the actual operating expenses—a comprehensive account of costs like maintenance, management fees, insurance, and utilities—from this effective gross income, the resulting amount illustrates the operational profitability of the property, or the NOI.

The other options provided do not accurately define the way to calculate NOI, as they either include irrelevant factors or do not consider the correct components of property revenues and expenses. Therefore, the method of EGI minus operating expenses is the valid approach to determine net operating income.