Which of the following is NOT included in potential gross income when estimating the value of an investment property?

Which of the following is NOT included in potential gross income when estimating the value of an investment property?

• A. Full rental prices by all tenants
• B. Licensing fees by vendors
• C. Parking and storage fees
• D. Settlement by the state for eminent domain

Answer: (D)

In estimating the value of an investment property, potential gross income (PGI) includes all expected income sources from the property during a specific period, typically a year. This encompasses full rental prices from all tenants, as these represent the primary source of income. Additionally, other forms of revenue that contribute to the overall income, such as licensing fees from vendors and income from parking and storage fees, are also part of PGI. However, settlements paid by the state for eminent domain are not included in PGI. Eminent domain refers to the government's power to take private property for public use, with compensation paid to the property owner for the loss of that property. This type of compensation is a one-time payment rather than a regular income stream generated by the property itself. Therefore, it does not contribute to the ongoing income generated by the investment property and is not factored into potential gross income calculations. Understanding this distinction is vital as it helps in evaluating the property’s operational income rather than one-off financial events that do not reflect the property's financial health over time.

In estimating the value of an investment property, potential gross income (PGI) includes all expected income sources from the property during a specific period, typically a year. This encompasses full rental prices from all tenants, as these represent the primary source of income. Additionally, other forms of revenue that contribute to the overall income, such as licensing fees from vendors and income from parking and storage fees, are also part of PGI.

However, settlements paid by the state for eminent domain are not included in PGI. Eminent domain refers to the government's power to take private property for public use, with compensation paid to the property owner for the loss of that property. This type of compensation is a one-time payment rather than a regular income stream generated by the property itself. Therefore, it does not contribute to the ongoing income generated by the investment property and is not factored into potential gross income calculations.

Understanding this distinction is vital as it helps in evaluating the property’s operational income rather than one-off financial events that do not reflect the property's financial health over time.