What is the difference between "gross rental income" and "net operating income"?

The correct answer highlights a fundamental distinction in real estate finance. Gross rental income refers to the total revenue generated from rental properties before any expenses are deducted. This figure encompasses all income received from tenants, including base rents and any additional income streams such as parking fees or service charges.

In contrast, net operating income (NOI) offers a more nuanced financial picture as it is derived by subtracting the property's operational expenses from the gross rental income. These operational expenses include costs for property management, maintenance, insurance, and property taxes, but do not consider financing costs, such as mortgage payments. Therefore, net operating income reflects the actual profitability of a property by showing what remains after covering necessary operating costs.

Understanding this distinction is crucial for investors and appraisers, as gross rental income alone does not provide insight into the property's financial performance or its capacity to generate profit once expenses are factored in.