With a potential gross rental income of $20,000, vacancy rate of 5%, and additional income from laundry and storage of $700, what is the effective gross income?

With a potential gross rental income of $20,000, vacancy rate of 5%, and additional income from laundry and storage of $700, what is the effective gross income?

• A. $19,700
• B. $20,000
• C. $19,300
• D. $20,700

Answer: (A)

Effective gross income is what you actually expect to collect after accounting for vacancy, plus any other income from the property. Start with potential gross rental income of 20,000. A 5% vacancy rate means you lose 0.05 × 20,000 = 1,000 to vacancies, so the rental income you expect to collect is 20,000 − 1,000 = 19,000. Add the additional income from laundry and storage, which is 700, giving 19,000 + 700 = 19,700. The effective gross income is 19,700.

Effective gross income is what you actually expect to collect after accounting for vacancy, plus any other income from the property. Start with potential gross rental income of 20,000. A 5% vacancy rate means you lose 0.05 × 20,000 = 1,000 to vacancies, so the rental income you expect to collect is 20,000 − 1,000 = 19,000. Add the additional income from laundry and storage, which is 700, giving 19,000 + 700 = 19,700. The effective gross income is 19,700.