Approaches to value
Effective gross income
Potential gross income less vacancy and collection losses, plus other income
Potential gross income assumes every unit is let and every tenant pays. Effective gross income is what the building actually collects, adjusted for vacancy and bad debt and increased by parking, laundry or storage income.
How the exam asks about it
The step order matters: potential gross, then effective gross, then net operating income. Items are built by skipping a step.
Related terms
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