What is the difference between gross income and net income in real estate?

The distinction between gross income and net income in real estate primarily revolves around the concepts of total revenue and the impact of expenses. Gross income refers to the total income generated by a property, encompassing all sources of revenue such as rent from tenants, leasing fees, and other income streams before any expenses are deducted. In contrast, net income is the amount that remains after all operating expenses—such as maintenance costs, property management fees, insurance, and property taxes—have been subtracted from the gross income.

Understanding this difference is crucial for property owners and appraisers as it helps in analyzing the property’s financial performance and profitability. Gross income provides an overview of all potential earnings, while net income gives a more accurate picture of actual financial health and available cash flow after accounting for operational costs.

The other choices do not accurately capture the defined financial metrics. For instance, gross income is not limited to tenant payments, as it can include multiple revenue sources. Similarly, net income is not irrelevant; it is critical for assessing a property's profitability. Lastly, the assertion regarding taxes misrepresents net income since it typically accounts for all expenses before arriving at the final figure, rather than solely reflecting a pre-tax or post-tax status.