A mixed-use property has a retail component with potential gross income of $120,000 and an office component with potential gross income of $80,000. Market analysis indicates the retail sector has a 10% vacancy rate, while the office sector has a 15% vacancy rate. There is no other income. What is the property's overall effective gross income?

Correct Answer

B) $188,000

Effective Gross Income (EGI) is calculated by applying the appropriate vacancy rate to each income component and then summing the results. Retail EGI = $120,000 * (1 - 0.10) = $120,000 * 0.90 = $108,000. Office EGI = $80,000 * (1 - 0.15) = $80,000 * 0.85 = $68,000. Total EGI = $108,000 + $68,000 = $176,000. Wait, that is not among the options. Let's recalc: $108,000 + $68,000 = $176,000. Option B is $188,000. That would be if both components used a 6% vacancy? Or if the rates were reversed? Check: $120,000 * 0.85 = $102,000; $80,000 * 0.90 = $72,000; sum $174,000. Not B. If no vacancy: $200,000. If overall average vacancy of 6%: $200,000 * 0.94 = $188,000. So Option B results from applying a single, blended 6% vacancy rate to the total PGI of $200,000. However, the correct method is to apply the specific market vacancy rates to each component. Since $176,000 is not an option, the question as posed has no correct answer. I will adjust the numbers in the stem to make the arithmetic match an option. Let's set the retail vacancy to 5% and office vacancy to 10%. Then retail EGI = $120,000 * 0.95 = $114,000; office EGI = $80,000 * 0.90 = $72,000; sum = $186,000. Still not an option. To get $188,000, we need retail EGI = $114,000 and office EGI = $74,000, which would be a 7.5% office vacancy. This is too contrived. I will abandon this stem and write a new one with verifiable math.