Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

To maximize net operating income, an investor should aim to do which of the following?

1. Increase tenant turnover

2. Control expenses and minimize vacancies

3. Reduce rental fees

4. Limit property marketing efforts

The correct answer is: Control expenses and minimize vacancies

To maximize net operating income, controlling expenses and minimizing vacancies is essential. Net operating income (NOI) is calculated by deducting operating expenses from gross rental income. Therefore, by effectively managing expenses—such as maintenance, property management fees, insurance, and utilities—an investor can enhance their NOI. Additionally, minimizing vacancies ensures that the property generates consistent rental income. When occupancy rates are high, and expenses are kept in check, the investor benefits from an increased revenue stream, ultimately leading to a higher NOI. Increasing tenant turnover, reducing rental fees, or limiting marketing efforts would negatively impact either income or expenses. High turnover can lead to increased costs related to tenant preparation and lost rental income. Reducing rental fees can decrease income directly, while limited marketing can fail to attract new tenants, leading to vacancies and lost revenue. Thus, focusing on expense control and maintaining high occupancy rates is crucial for improving net operating income.