Which formula is used to calculate the net income ratio?

The net income ratio is a critical metric in evaluating the profitability of a real estate investment, and it is calculated by dividing net operating income by effective gross income. This formula provides insight into how efficiently a property generates income relative to its total revenue.

Net operating income (NOI) represents the income generated by the property after deducting operating expenses, but before accounting for financing costs and taxes. Effective gross income (EGI) reflects the total income expected from the property, including potential gross income adjusted for vacancy losses and other factors.

By using this ratio, investors can assess what portion of their effective gross income is turning into net operating income. A higher net income ratio indicates that a greater proportion of income is being retained after covering operating expenses, which is a sign of a well-managed property.

The other options provided do not relate directly to the calculation of the net income ratio. They each represent different financial analyses or metrics that are useful in their own contexts but do not serve as the formula for determining the net income ratio in real estate. Understanding this relationship between NOI and EGI is fundamental for effectively evaluating the financial performance of real estate investments.