valuation

potential gross income

The total annual income a property could produce if it were fully rented at market rents with no vacancies or collection losses, plus any other income such as parking or laundry. It is the starting point in the income approach. Subtracting vacancy and collection loss gives effective gross income.

Exam tip: Order of operations: potential gross income minus vacancy and collection loss equals effective gross income, minus operating expenses equals net operating income.
Example: A 10-unit building with market rent of $1,500 per unit has potential gross income of $180,000 per year.

1. A commercial property has potential gross income of $240,000 and an 8% vacancy allowance. Using a gross income multiplier of 6, what is the estimated value?

Answer & explanation

Answer: D. EGI = $240,000 - 8% = $220,800; value = $220,800 x 6 = $1,324,800.

Related terms & state variants

effective gross income income approach net operating income vacancy and collection loss

Sources

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Last verified: 2026-10-23