Property Valuation
In the income approach, potential gross income (PGI) represents:
AIncome after subtracting operating expenses
BMaximum rental income a property could generate if fully occupied at market rents✓ Correct
CActual income collected after vacancy
DNet income after mortgage payments
Explanation
Potential Gross Income (PGI) is the maximum rental income a property could generate assuming 100% occupancy at market rents. Vacancy and credit losses are subtracted from PGI to arrive at Effective Gross Income.
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Key Terms to Know
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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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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