The effective gross income multiplier is calculated as:
Correct Answer
D) Sale price divided by effective gross income
Why this is correct: The effective gross income multiplier (EGIM) is a ratio used to convert a property's effective gross income (EGI) into an indication of value. By definition, it is calculated as Sale Price divided by Effective Gross Income. This aligns with the general principle that a multiplier is price over income, while a rate (like a capitalization rate) is income over price. Why the other choices are wrong: "Sale price divided by net operating income" calculates the overall capitalization rate's inverse, not the EGIM. "Net operating income divided by sale price" calculates the overall capitalization rate itself. "Effective gross income divided by sale price" inverts the correct formula, producing a rate, not a multiplier. Exam tip: Remember the mnemonic: Multiplier is Price over Income (MPI). This helps avoid the common inversion error.
Why This Is the Correct Answer
Why this is correct: The effective gross income multiplier (EGIM) is a ratio used to convert a property's effective gross income (EGI) into an indication of value. By definition, it is calculated as Sale Price divided by Effective Gross Income. This aligns with the general principle that a multiplier is price over income, while a rate (like a capitalization rate) is income over price. Why the other choices are wrong: "Sale price divided by net operating income" calculates the overall capitalization rate's inverse, not the EGIM. "Net operating income divided by sale price" calculates the overall capitalization rate itself. "Effective gross income divided by sale price" inverts the correct formula, producing a rate, not a multiplier. Exam tip: Remember the mnemonic: Multiplier is Price over Income (MPI). This helps avoid the common inversion error.
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