Property Valuation
In an income property analysis, 'potential gross income' (PGI) is:
AThe income actually collected after vacancies and credit losses
BThe maximum income a property could generate if fully occupied at market rents✓ Correct
CThe net income after all operating expenses
DThe income reported on the owner's tax return
Explanation
Potential gross income (PGI) is the total rental income a property would generate if it were 100% occupied at market rents for the entire year. It does not account for vacancies, credit losses, or expenses.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Listing AgreementA contract between a property owner and a real estate broker that authorizes the broker to market and sell the property.
Math Concepts
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