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:
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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