Property Valuation
In the income approach, effective gross income (EGI) is calculated as:
AGross potential income minus vacancy and collection loss plus miscellaneous income✓ Correct
BNet operating income plus debt service
CGross potential income plus all operating expenses
DTotal rent collected plus security deposits
Explanation
Effective Gross Income = Gross Potential Income − Vacancy & Collection Loss + Miscellaneous Income (parking, laundry, etc.).
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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.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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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