Beginning wif total revenue, how do you reach net operating income? Review Later Subtract non-controllable items, adjust controllable items, and exclude non-cash items. Adjust non-controllable items, subtract controllable items, and exclude non-cash items. Subtract non-cash items, exclude non-controllable items, and adjust controllable items. Why is it important to normalize the income statement? Normalizing the income statement helps account for an inflationary economic environment. It adjusts the property's expenses for the year to be more realistic if the overall market of comparable properties is performing poorly. It adjusts the property's expenses to what they should generally look like when compared to other comparable properties. Which of the following is NOT a reason to examine the environmental condition of a property? Reputational risk for the lender Increased default risk of tenants Complaints from residents and businesses in the area Deterioration of collateral value of the property Review Later Why does our financial model include two inputs for cap rate market cap rate and test cap rate? Select ALL that apply. Having two inputs for the market cap rate and test cap rate allows us to show the client how much better the bank's rate is compared to the market cap rate. Macroeconomic conditions and market factors can cause cap rate compression. The test cap rate sensitizes for these factors, allowing us to see a valuation under normal conditions. The test cap rate is usually set slightly higher than the market cap rate to show us a more conservative scenario when evaluating the property.