A property's other income includes parking, laundry and storage fees. These are added:
Correct Answer
A) To effective gross income after the vacancy deduction
Why this is correct: In the income approach, effective gross income (EGI) is potential gross income minus vacancy and collection losses. Ancillary income (like parking fees) is typically not subject to the same vacancy factor as base rent, so it is added to EGI after the vacancy deduction has been applied to the rental income. Why the other choices are wrong: 'To potential gross income before any deduction' would incorrectly subject ancillary income to a vacancy factor it doesn't experience. 'To net operating income after expenses' would omit it from gross income altogether. 'To the reversion at the end of the holding period' incorrectly treats it as a future sale value. Exam tip: Ancillary income is usually added to EGI, not PGI, because it's not vacant in the same way as rentable space.
Why This Is the Correct Answer
Why this is correct: In the income approach, effective gross income (EGI) is potential gross income minus vacancy and collection losses. Ancillary income (like parking fees) is typically not subject to the same vacancy factor as base rent, so it is added to EGI after the vacancy deduction has been applied to the rental income. Why the other choices are wrong: 'To potential gross income before any deduction' would incorrectly subject ancillary income to a vacancy factor it doesn't experience. 'To net operating income after expenses' would omit it from gross income altogether. 'To the reversion at the end of the holding period' incorrectly treats it as a future sale value. Exam tip: Ancillary income is usually added to EGI, not PGI, because it's not vacant in the same way as rentable space.
More income-approach Questions
In a percentage lease, rent is commonly structured as:
Escalation clauses and expense stops in a lease matter to the income analysis because they:
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Two identical buildings differ only in risk: one has a single tenant on a short lease, the other five tenants on staggered terms. How do their cap rates compare?
Contract rent on a leased office is $30 per sq ft; market rent is $26. The $4 difference is called:
Building A (new, credit tenant, 20-year lease) and Building B (older, month-to-month tenants) sell the same week. Their cap rates should differ how?
An appraiser is analyzing a 15-unit apartment building. Market research indicates a 6% vacancy rate is typical for similar properties, but this property's historical vacancy has averaged 4%. The subject has experienced a 1% collection loss (uncollectible rents) over the past two years. When estimating effective gross income for the subject, what vacancy and collection loss percentage should the appraiser apply?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
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