Effective Gross Income (EGI)

### Does Effective Gross Income (EGI) include expenses for operating the property? - [ ] Yes, all operating expenses are included. - [x] No, it does not include operating expenses. - [ ] Yes, but only utility expenses are included. - [ ] No, it only includes mortgage payments and interest. > **Explanation:** Effective Gross Income (EGI) is an intermediate calculation before expenses are subtracted. It includes total potential income minus vacancies, plus miscellaneous income, but not operating expenses. ### How does EGI account for vacancy and collection losses? - [ ] It does not consider vacancies. - [ ] It includes an estimated gain for vacancies. - [x] It subtracts an estimated amount for vacancy and collection losses. - [ ] It converts vacancies to another form of income. > **Explanation:** EGI subtracts an estimated percentage or dollar amount for vacancy and collection losses from the Potential Gross Income to give a more accurate income figure. ### Which component of income would be considered miscellaneous when calculating EGI? - [ ] Monthly rental fees - [x] Laundry machine profits - [ ] Insurance refunds - [ ] Taxes > **Explanation:** Miscellaneous income includes additional earnings from services that complement the primary rental income, such as laundry machine profits. ### What would a high vacancy rate indicate about a property? - [x] It could lead to a lower Effective Gross Income. - [ ] It increases Effective Gross Income. - [ ] It does not affect Effective Gross Income. - [ ] It has no relation to income figures. > **Explanation:** A high vacancy rate would mean more units are unoccupied, leading to reduced rental income, and therefore a lower Effective Gross Income. ### What is the next step after calculating EGI in the financial analysis of a property? - [x] Deducting operating expenses to determine Net Operating Income (NOI) - [ ] Adding tenant incentives - [ ] Applying depreciation rates - [ ] Filing for property tax discounts > **Explanation:** After calculating EGI, operating expenses are deducted to arrive at the Net Operating Income (NOI), which is a key figure in evaluating a property's profitability. ### If a property has a PGI of $400,000, a vacancy loss of $20,000, collection losses of $5,000, and miscellaneous income of $15,000, what is its EGI? - [x] $390,000 - [ ] $400,000 - [ ] $405,000 - [ ] $410,000 > **Explanation:** \\[ EGI = PGI - Vacancy Allowance - Collection Losses + Miscellaneous Income EGI = \$400,000 - \$20,000 - \$5,000 + \$15,000 = \$390,000 \\] ### Why is EGI considered more realistic than PGI? - [ ] Because it adds more income through miscellaneous services. - [x] Because it subtracts expected losses and vacancies. - [ ] Because it includes future appreciation of the property. - [ ] Because it accounts for market fluctuations. > **Explanation:** EGI is more realistic than PGI as it adjusts for real-world factors like vacancies and collection losses, providing a closer estimate of actual income. ### How is miscellaneous income typically sourced in residential properties? - [x] Through ancillary services like laundry, parking, and storage fees - [ ] Through leasing the building foundation - [ ] Through government subsidies - [ ] By selling property parts > **Explanation:** Miscellaneous income in residential properties often comes from additional amenities like laundry services, parking, and storage fees. ### Why is it important to track collection losses separately? - [x] To accurately reflect non-collected rent in financial statements - [ ] To ignore smaller sources of income - [ ] To adjust rents upward - [ ] To align with tenant expectations > **Explanation:** Tracking collection losses separately ensures that the financial statements accurately reflect the non-collected rent, which is important for determining true income performance. ### If a building had an EGI of $800,000, what would a sudden increase in vacancy rates due to economic downturn be expected to do? - [ ] Increase the EGI - [x] Decrease the EGI - [ ] Have no impact on EGI - [ ] Increase the operating expenses > **Explanation:** An economic downturn resulting in higher vacancies would decrease the EGI, as more units would be unoccupied, reducing rental income.