In vacancy calculations, which statement is correct?

In vacancy calculations, which statement is correct?

• A. Vacancy Loss = PGI × Vacancy Rate.
• B. Vacancy Loss is unrelated to PGI.
• C. Vacancy Loss equals NOI divided by vacancy rate.
• D. Vacancy Loss is equal to PGI plus vacancy rate.

Answer: (A)

Vacancy loss is the portion of potential income that isn’t collected because units sit empty. Potential Gross Income (PGI) is what you’d earn if everything were full, and the vacancy rate represents the fraction of that potential income you expect to lose due to vacancies. So the dollar amount of vacancy loss is PGI × vacancy rate. For example, if PGI is $120,000 and the vacancy rate is 6%, vacancy loss is $7,200, and the effective gross income would be $112,800 (PGI minus vacancy loss). The other statements don’t fit because vacancy loss is a dollar amount tied to PGI, not unrelated to it; it isn’t calculated as NOI divided by the vacancy rate, and you don’t add the vacancy rate to PGI to get vacancy loss.

Vacancy loss is the portion of potential income that isn’t collected because units sit empty. Potential Gross Income (PGI) is what you’d earn if everything were full, and the vacancy rate represents the fraction of that potential income you expect to lose due to vacancies. So the dollar amount of vacancy loss is PGI × vacancy rate. For example, if PGI is $120,000 and the vacancy rate is 6%, vacancy loss is $7,200, and the effective gross income would be $112,800 (PGI minus vacancy loss). The other statements don’t fit because vacancy loss is a dollar amount tied to PGI, not unrelated to it; it isn’t calculated as NOI divided by the vacancy rate, and you don’t add the vacancy rate to PGI to get vacancy loss.