An operating statement separates base rent and already-effective ancillary real-estate income into distinct line items before totaling EGI. Where should separately collected parking receipts be classified?
Correct Answer
C) Other income, under the stated line-item classification.
Under the stated reporting classification, separately identified ancillary real-estate parking receipts are other income. When constructing total PGI or EGI, other income is a component of those totals. Reflect expected collection and avoid business-income assumptions.
Why This Is the Correct Answer
Option C is correct because separately collected parking receipts are ancillary real estate income and, under the stated line-item format, are reported as other income. Other income is then included when totaling PGI or EGI.
Why the Other Options Are Wrong
Option A: Base rent, because it is part of total property income.
Option A, classifying parking as base rent because it is part of total property income, ignores the stated format that separates base rent from ancillary income. Being part of total income does not make a receipt base rent.
Option B: A negative operating expense on the statement.
Option B, recording parking as a negative operating expense, misplaces an income item on the expense side. Parking receipts are income and belong in other income, not netted against expenses.
Option D: Refundable security deposits held as a liability.
Option D, treating parking receipts as refundable security deposits held as a liability, confuses earned income with refundable deposits. Parking fees are earned receipts, not funds held for return to tenants.
Parking, laundry, vending: other income
Remember the common trio of other income items: parking, laundry and vending. They add to gross income but are not base rent.
How to use: Use this list to classify ancillary receipts on an operating statement.
Exam Tip
When the question describes a separate line for ancillary income, place items like parking there rather than in rent or expenses.
Common Mistakes to Avoid
- -Lumping ancillary income into base rent
- -Netting income items against expenses
- -Counting security deposits as income
Concept Deep Dive
Analysis
This question tests how ancillary real estate income is classified on an operating statement. Parking receipts collected separately from base rent are a classic example of other income. The stem's reporting format separates base rent from ancillary income, so parking belongs in the other income line.
Background Knowledge
Gross income includes base rent and other income such as parking fees, laundry and vending. These items are often shown on separate lines before totaling potential or effective gross income. Security deposits are liabilities and are not income.
Real-World Application
An appraiser reconstructing an apartment building's operating statement sees that tenants pay separately for reserved parking. The appraiser lists parking receipts as other income, estimates expected collections and adds them to rent to build gross income.
More Income Approach Questions
Which model describes yield capitalization of property benefits?
An appraiser is valuing a duplex. A market survey of recent duplex sales reports prices at 10.8 times potential gross income, with stabilized vacancy and credit loss of 10% of PGI and no other income. The subject's rent schedule is unavailable, but the property manager's records show collected income of $54,000 a year, in line with market rent and the 10% market loss. What value is indicated?
The subject property is a fourplex with annual EGI of $72,000 and operating expenses of $28,800. Of those expenses, $18,000 is fixed and $10,800 varies in direct proportion to EGI. The owner's annual mortgage payments are $21,000. An appraiser projects that EGI will fall 10% because of higher vacancy. What is the projected NOI?
Annual NOI available for debt service is $168,000 and total annual mortgage principal and interest debt service is $120,000. What is NOI ÷ debt service?
Annual PGI is $250,000 and combined vacancy and collection loss is explicitly 12% of that same PGI base. There is no other income. What annual EGI remains?
Annual PGI is $360,000 and combined vacancy and collection loss is explicitly 8% of that same PGI base. There is no other income. What annual EGI remains?
Annual PGI is $640,000. Combined vacancy and collection loss is 6.25% of PGI. There is no other income. What EGI remains?
An appraiser is updating a prior appraisal of a triplex with potential gross income of $60,000 and no other income. The prior appraisal used vacancy and credit loss of 5% of PGI, and a new survey of competing rentals indicates 8%. The operating expenses of $24,000 are property taxes, insurance and contract services that do not vary with occupancy, and the market overall rate remains 7.5%. By what percentages do effective gross income and indicated value decrease?
Annual potential rental income is $600,000 and vacancy loss alone is $36,000. What percentage of potential rent does that loss represent?
In the subject's market, lenders on fourplexes have lowered their typical loan-to-value ratio from 70% to 60%. The annual mortgage constant remains 5% and the equity dividend rate remains 10%. The subject's NOI has not changed. How does this affect the overall rate indicated by the band of investment and the indicated value?
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
Previous Question
End-of-year-one net operating cash flow is $89,000 and additional net sale proceeds at that same date are $1,000,000. No other cash flows apply. At a 10% annual discount rate, what present value results?
Next Question
A leased-fee DCF has a 10-year holding period. An enforceable anchor lease has 12 years remaining at fixed rent. What treatment is consistent with that interest?