Property Valuation
In the income approach to appraisal, 'potential gross income' (PGI) is defined as:
AActual rent collected after vacancies
BThe total rental income a property would generate if 100% occupied at market rents✓ Correct
CNOI before depreciation
DIncome after all operating expenses
Explanation
Potential gross income is the theoretical maximum rent at 100% occupancy at market rates. Vacancy and collection losses are deducted from PGI to arrive at effective gross income.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
DepreciationA 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.
Math Concepts
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