In its simplest sense, Effective Gross Income
on a property is actually the result of collected lease income, miscellaneous income and expense reimbursements (less vacancy and collection loss).
able 1 Comparing Resale Rates of Return Conventional Apartment Year 0 1 2 Gross potential/rent $0 $1,248,000 $1,295,174 Other income $0 $20,000 $20,756 Total gross potential $0 $1,268,000 $1,315,930 Effective gross income
$0 $1,148,808 $1,192,233 Expenses $0 $658,800 $678,564 Net operating income $0 $490,008 $513,669 Sale proceeds -$5,000,000 $0 $0 Total proceeds -$5,000,000 $490,008 $513,669 Internal Rate of Return 14.
Vacancy and collection loss is estimated at 5%, and total operating expenses, including property tax, insurance, maintenance, and management are about 35% of effective gross income
o] Implied NOI Benchmarked expenses Implied effective gross income Effective gross income
per square foot Known facts 100,000 square feet $10,000,000 11.
Vacancy and collection losses are forecast to be 5% and expenses will be one-third of effective gross income
For example, an appraiser may analyze sales of income-producing properties to derive potential and effective gross income
multipliers, overall and equity capitalization rates, and even total property yield rates.
BEP shows the percentage of the effective gross income
(EGI) at which the before-cash tax flow or BTCF is 0.
Potential rental income ("net rent") $ 72,500 Potential expense recoveries Properly tax (pass through to tenants) $30,935 Other expense (pass through to tenants) + $21,565 Total (pass through to tenants) $ 52,500 Potential gross income (PGI) $125,000 Less vacancy and credit loss [at] 10% - $ 12,500 Effective gross income
(EGI) $112,500 Less operating expenses Property tax (total) $ 30,935 Other operating expense (total) + $ 21,565 Total operating expenses $ 52,500 Net operating income (NOI) $ 60,000 Indicated market value ($60,000/0.
In the standard treatment of an income stream in a tax appraisal, stabilized operating expenses (excluding real estate taxes) are deducted from the stabilized effective gross income
In cases where the deferred maintenance is so evident that a comparable's rent level is measurably affected, consideration must also be given to the effect on the valuation indicators - overall rate (OAR), and gross or effective gross income
multiplier (GIM, EGIM).
A distinction is made between gross rent multipliers (GRMs) and GIMs as well as between potential gross income multipliers (PGIMs) and effective gross income
The sale price can be divided by either the potential or the effective gross income
resulting in either a potential gross income multiplier (PGIM) or an effective gross income
multiplier (EGIM), respectively.