Which measure is affected by vacancies and credit losses?

Which measure is affected by vacancies and credit losses?

• A. EGI
• B. GPR
• C. NOI
• D. Debt Service

Answer: (A)

Vacancies and credit losses reduce the actual money the property can bring in. That reduction is captured in Effective Gross Income, which is calculated as Potential Gross Income minus Vacancy and Credit Losses. So, if Potential Gross Income is $120,000 and vacancy/credit losses total $12,000, the Effective Gross Income would be $108,000. Gross Potential Rent (or Potential Gross Income) shows the maximum if fully rented and doesn’t reflect vacancies. Net Operating Income then takes EGI and subtracts operating expenses, while Debt Service is a financing payment and isn’t an income measure.

Vacancies and credit losses reduce the actual money the property can bring in. That reduction is captured in Effective Gross Income, which is calculated as Potential Gross Income minus Vacancy and Credit Losses. So, if Potential Gross Income is $120,000 and vacancy/credit losses total $12,000, the Effective Gross Income would be $108,000. Gross Potential Rent (or Potential Gross Income) shows the maximum if fully rented and doesn’t reflect vacancies. Net Operating Income then takes EGI and subtracts operating expenses, while Debt Service is a financing payment and isn’t an income measure.