Potential gross income for an office building includes:
Correct Answer
D) Rent for all leasable space at market or contract rates
Why this is correct: Potential Gross Income (PGI) is the total annual income a property would generate if 100% occupied at market rental rates (or existing contract rates if higher). It includes rent for all leasable space, providing the starting point for the income statement. Why the other choices are wrong: "Only the rent from suites that are currently occupied" defines actual gross income, not PGI. "Rent net of the vacancy allowance" defines Effective Gross Income (EGI). "Income after operating expenses are paid" defines Net Operating Income (NOI). Exam tip: Remember the order: PGI - Vacancy & Collection Loss + Other Income = EGI. EGI - Operating Expenses = NOI.
Why This Is the Correct Answer
Why this is correct: Potential Gross Income (PGI) is the total annual income a property would generate if 100% occupied at market rental rates (or existing contract rates if higher). It includes rent for all leasable space, providing the starting point for the income statement. Why the other choices are wrong: "Only the rent from suites that are currently occupied" defines actual gross income, not PGI. "Rent net of the vacancy allowance" defines Effective Gross Income (EGI). "Income after operating expenses are paid" defines Net Operating Income (NOI). Exam tip: Remember the order: PGI - Vacancy & Collection Loss + Other Income = EGI. EGI - Operating Expenses = NOI.
More Income Approach Questions
In a percentage lease, rent is commonly structured as:
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:
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 overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
Replacement reserves cover which kind of expenditure?
What is the primary distinction, for appraisal purposes, between 'vacancy loss' and 'collection loss'?
An appraiser is analyzing a mixed-use property with retail and office components. The retail segment has a potential gross income of $180,000 with a market vacancy of 8%. The office segment has a potential gross income of $120,000 with a market vacancy of 12%. What is the overall effective gross income for the property?
The mortgage constant represents:
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam