Property Valuation
In the income approach, 'potential gross income' (PGI) assumes:
AA realistic vacancy rate
BThe property is 100% occupied at market rent✓ Correct
CThe property's current actual occupancy
DOccupancy at 80% of market rent
Explanation
PGI is the theoretical maximum income a property could generate if it were 100% occupied at market rents throughout the year — before adjusting for vacancies and collection losses.
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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.
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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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