For a commercial property with a potential gross income of $1,575,000 and estimated vacancy losses of 15%, how is the effective gross income found?

To determine the effective gross income for a commercial property, the approach involves accounting for estimated vacancy losses. In this case, the potential gross income is $1,575,000, and the vacancy losses are estimated at 15%.

To find the effective gross income, you would first calculate the dollar amount of the vacancy losses. This is achieved by multiplying the potential gross income by the vacancy rate of 15%.

Calculating the vacancy loss:

15% of $1,575,000 equals $236,250 (which is calculated as 0.15 × $1,575,000).

Next, this amount is then deducted from the potential gross income to arrive at the effective gross income.

So, the effective gross income is calculated as:

Effective Gross Income = Potential Gross Income - Vacancy Loss Effective Gross Income = $1,575,000 - $236,250 Effective Gross Income = $1,338,750.

This process illustrates how effective gross income is a crucial metric for understanding the income potential of a property after considering the likelihood of vacancy. Thus, the correct method is to deduct the calculated vacancy loss from the potential gross income, confirming that the correct answer is found through this method.