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Effective Gross Income [0517] |
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An office building is valued at $1,000,000 when net operating income is capitalized at a rate of 12 percent. If total operating expenses are 40% of effective gross income, what is effective gross income?
NOI = 0.12 x $1,000,000 = $120,000 OE = 0.40 x EGI NOI = EGI – OE therefore $120,000 = EGI – (.40 x EGI) Solving for EGI 0.6 x EGI = $120,000 EGI = $120,000 ÷ 0.6 = $200,000 |