Property Valuation
Effective gross income (EGI) for a rental property is calculated as:
APotential gross income minus operating expenses
BPotential gross income minus vacancy and credit losses✓ Correct
CNet operating income plus depreciation
DGross rent plus ancillary income before expenses
Explanation
Effective Gross Income = Potential Gross Income (100% occupancy) - Vacancy and Credit Losses + Other Income. It represents the income the property is expected to actually collect.
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Key Terms to Know
Depreciation
A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
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.
Math Concepts
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