Which of the following best describes effective gross income?

Which of the following best describes effective gross income?

• A. Total income before operating expenses.
• B. Income after vacancy and credit losses are deducted.
• C. Income generated from rental units only.
• D. Projected income based on current market trends.

Answer: (B)

Effective gross income is best described as the income of a property after accounting for vacancies and credit losses. This concept considers the reality that not all rented units will generate income at all times due to vacancies, or tenants may fail to pay their rent fully or on time. By deducting these potential losses from the total potential rental income, effective gross income provides a more accurate picture of the actual income a property is expected to generate. The other choices do not encapsulate the full scope of effective gross income. Total income before operating expenses does not account for the practical losses experienced from vacancies and tenant defaults. Income generated from rental units only is too narrow in definition, as effective gross income might include other income sources related to the property, not just rental payments. Projected income based on current market trends ignores the immediate financial realities that also affect income, such as vacancies and credit losses. Therefore, the correct answer encompasses the necessary adjustments for a realistic income assessment.

Effective gross income is best described as the income of a property after accounting for vacancies and credit losses. This concept considers the reality that not all rented units will generate income at all times due to vacancies, or tenants may fail to pay their rent fully or on time. By deducting these potential losses from the total potential rental income, effective gross income provides a more accurate picture of the actual income a property is expected to generate.

The other choices do not encapsulate the full scope of effective gross income. Total income before operating expenses does not account for the practical losses experienced from vacancies and tenant defaults. Income generated from rental units only is too narrow in definition, as effective gross income might include other income sources related to the property, not just rental payments. Projected income based on current market trends ignores the immediate financial realities that also affect income, such as vacancies and credit losses. Therefore, the correct answer encompasses the necessary adjustments for a realistic income assessment.