An eight-unit building rents for $800/mo and earns $4,000 annually from laundry and vending. With a 5% vacancy factor, what is the estimated annual effective gross income?

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Study for the Washington Real Estate Fundamentals Rockwell Exam. Utilize flashcards, multiple choice questions with hints and explanations. Prepare thoroughly for your real estate career!

Multiple Choice

An eight-unit building rents for $800/mo and earns $4,000 annually from laundry and vending. With a 5% vacancy factor, what is the estimated annual effective gross income?

Explanation:
Effective gross income is the amount the property is expected to generate after vacancies but before operating expenses. First, calculate the potential rental income from the eight units: 8 × $800 × 12 = $76,800. A 5% vacancy factor reduces this rental income: 0.05 × $76,800 = $3,840 in losses. Subtracting gives $76,800 − $3,840 = $72,960 of rental income after vacancy. Add the annual income from laundry and vending: $72,960 + $4,000 = $76,960. So, the estimated annual effective gross income is $76,960.

Effective gross income is the amount the property is expected to generate after vacancies but before operating expenses.

First, calculate the potential rental income from the eight units: 8 × $800 × 12 = $76,800. A 5% vacancy factor reduces this rental income: 0.05 × $76,800 = $3,840 in losses. Subtracting gives $76,800 − $3,840 = $72,960 of rental income after vacancy.

Add the annual income from laundry and vending: $72,960 + $4,000 = $76,960.

So, the estimated annual effective gross income is $76,960.

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