Property Valuation
In the income approach, 'effective gross income' (EGI) is calculated as:
APotential gross income minus operating expenses
BPotential gross income minus vacancy and collection losses✓ Correct
CNet operating income plus operating expenses
DActual collected rent only
Explanation
EGI = Potential Gross Income (PGI) - Vacancy and Collection Losses + Miscellaneous Income. It represents the income actually available from the property after accounting for vacancies and rent defaults.
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Key Terms to Know
Gross Rent Multiplier (GRM)
A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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