A 12-unit building rents at $1,450 per unit monthly with 6% vacancy and collection loss and $7,200 annual parking income. Effective gross income is:
Correct Answer
A) $203,472
Why this is correct: Calculate step-by-step: 1) Potential Gross Income (PGI) from units: 12 units × $1,450/month × 12 months = $208,800. 2) Vacancy & Collection Loss: 6% of $208,800 = $12,528. 3) Net Rental Income: $208,800 - $12,528 = $196,272. 4) Add Other Income (parking): $196,272 + $7,200 = $203,472 Effective Gross Income (EGI). Why the other choices are wrong: '$208,800 before any deduction for vacancy losses' is the PGI, not EGI. '$196,272 excluding the parking income entirely' omits the other income. '$216,000 counting parking at its gross potential' incorrectly adds parking to PGI before applying vacancy. Exam tip: EGI = PGI - Vacancy & Collection Loss + Other Income. Apply vacancy to rental income before adding other stable income.
Why This Is the Correct Answer
Why this is correct: Calculate step-by-step: 1) Potential Gross Income (PGI) from units: 12 units × $1,450/month × 12 months = $208,800. 2) Vacancy & Collection Loss: 6% of $208,800 = $12,528. 3) Net Rental Income: $208,800 - $12,528 = $196,272. 4) Add Other Income (parking): $196,272 + $7,200 = $203,472 Effective Gross Income (EGI). Why the other choices are wrong: '$208,800 before any deduction for vacancy losses' is the PGI, not EGI. '$196,272 excluding the parking income entirely' omits the other income. '$216,000 counting parking at its gross potential' incorrectly adds parking to PGI before applying vacancy. Exam tip: EGI = PGI - Vacancy & Collection Loss + Other Income. Apply vacancy to rental income before adding other stable income.
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