California Real Estate SalespersonProperty Valuation and Financial AnalysisMedium
A commercial property has annual Potential Gross Income (PGI) of $150,000. It experiences a 4% vacancy and collection loss. The property also generates an additional $5,000 per year from laundry facilities. What is the Effective Gross Income (EGI) for this property?
- A$156,000
- B$149,000
- C$151,000
- D$144,000
Show answer & explanationAnswer & explanation
Correct answer: B. $149,000
First, calculate the vacancy and collection loss: $150,000 * 0.04 = $6,000. Then, subtract this from PGI and add other income: $150,000 - $6,000 + $5,000 = $149,000.
Why the other options are wrong
- A. Incorrect, likely from adding vacancy instead of subtracting.
- C. Incorrect, likely from miscalculating vacancy or adding it.
- D. Incorrect, likely from only subtracting vacancy and not adding other income.
Effective Gross Income (EGI)
The potential gross income less vacancy and collection losses, plus other income (e.g., laundry, parking fees).
- Represents the actual income collected
- Precedes the calculation of Net Operating Income (NOI)
- Does not factor in operating expenses yet
Memory trick: PGI Minus Vacancy Plus Other