California Real Estate Practice Exam

Potential gross income of an investment property is the same as?

1. Market rent plus other building income

2. Operating income

3. Net income

4. Effective gross income

The correct answer is: Market rent plus other building income

Potential gross income of an investment property refers to the maximum amount of income that the property could potentially generate, without taking into account any expenses or deductions. Market rent plus other building income would be equivalent to the potential gross income as it combines the market rent, which is the rent that a property could realistically achieve, with any additional sources of income from the property such as parking fees or laundry income. Operating income, net income, and effective gross income all involve deducting expenses from the potential gross income, and therefore, are not the same as potential gross income. Operating income is the amount left after deducting operating expenses, while net income is the amount left after deducting all expenses, including financing expenses. Effective gross income is the potential gross income minus vacancy and credit losses. Therefore, A Market rent plus other building income is the correct answer.