Property Valuation
Potential Gross Income (PGI) minus vacancy and collection losses equals:
ANet Operating Income (NOI)
BEffective Gross Income (EGI)✓ Correct
CAdjusted Gross Income (AGI)
DCash Flow Before Taxes
Explanation
Effective Gross Income (EGI) = Potential Gross Income (PGI) – Vacancy and Collection Losses. EGI represents the income actually expected to be collected.
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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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