A four-unit building has one unit the owner occupies rent-free. How is that unit treated in potential gross income?
Correct Answer
A) At its market rent, like every other unit
Why this is correct: Potential Gross Income (PGI) is the total market rent the property could generate if all units were leased at market rates. Owner-occupancy is a personal use decision; the unit's rental potential remains. Why the other choices are wrong: 'Excluded, because it produces no cash' confuses actual income with potential income. 'At half of market rent as a compromise' has no analytical basis. 'At the owner's imputed cost of living there' is not a market rent concept. Exam tip: PGI is based on 100% occupancy at market rents, regardless of actual occupancy.
Why This Is the Correct Answer
Why this is correct: Potential Gross Income (PGI) is the total market rent the property could generate if all units were leased at market rates. Owner-occupancy is a personal use decision; the unit's rental potential remains. Why the other choices are wrong: 'Excluded, because it produces no cash' confuses actual income with potential income. 'At half of market rent as a compromise' has no analytical basis. 'At the owner's imputed cost of living there' is not a market rent concept. Exam tip: PGI is based on 100% occupancy at market rents, regardless of actual occupancy.
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