Question at position 2 Effective gross income (EGI) less operating expenses and reserves (if applicable) is known aspotential gross income (PGI).pre-tax cash flow.after-tax cash flow.net operating income (NOI or IO)Single choice
A
potential gross income (PGI).
B
pre-tax cash flow.
C
after-tax cash flow.
D
net operating income (NOI or IO)

Question

Question at position 2 Effective gross income (EGI) less operating expenses and reserves (if applicable) is known aspotential gross income (PGI).pre-tax cash flow.after-tax cash flow.net operating income (NOI or IO)Single choice

A

potential gross income (PGI).

B

pre-tax cash flow.

C

after-tax cash flow.

D

net operating income (NOI or IO)

BlackTom AI · Accepted Answer

Let's break down the terminology and the relationships between these figures. 
Option 1: potential gross income (PGI). PGI is the total income a property could generate if fully occupied and collecting all possible rent, with no vacancy or credit losses. It is not the result of subtracting expenses from EGI, so this is not what EGI minus operating expenses and reserves yields. 
Option 2: pre-tax cash flow. Pre-tax cash flow is typically calculated after debt service (loan payments) is subtracted from cash flow, and may still be before taxes. Since the operation expenses and reserves are subtracted from EGI to arrive at a smaller amount, this option does not describe the value obtained solely by subtracting operating expenses and reserves from EGI. 
Option 3: after-tax cash flow. After-tax cash flow further accounts for tax effects, such as income taxes, and is therefore not the same as EGI minus operating expenses and reserves. This step goes beyond NOI, making it inconsistent with the described calculation. 
Option 4: net operating income (NOI or IO). NOI is defined as effective gross income minus operating expenses (and reserves if applicable). This matches the description given in the question exactly, since it reflects the income left after operating the property, before debt service and taxes. 
In summary, the first three options refer to figures that either precede or extend beyond typical NOI calculations, whereas NOI specifically represents EGI minus operating expenses and reserves (if applicable). The reasoning aligns with standard real estate income calculations and nomenclature.

Question at position 2 Effective gross income (EGI) less operating expenses and reserves (if applicable) is known aspotential gross income (PGI).pre-tax cash flow.after-tax cash flow.net operating income (NOI or IO)Single choice

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