Property Valuation
In Massachusetts, 'vacancy and collection loss' in the income approach is typically estimated as a percentage of:
ANet operating income
BPotential gross income✓ Correct
COperating expenses
DLand value
Explanation
Vacancy and collection loss is expressed as a percentage of potential gross income (PGI), representing the amount by which actual income falls short of full occupancy due to vacancies and uncollected rents.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
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.
Math Concepts
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