Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

What does Effective Gross Income (EGI) encompass?

1. Only the rent collected

2. All income, including rent and additional sources

3. Profit after operating expenses

4. Total income less bad debt

The correct answer is: All income, including rent and additional sources

Effective Gross Income (EGI) represents a comprehensive measure of a property's income potential. It encompasses all income sources associated with the property, which includes not only the rent collected from tenants but also additional revenue streams such as fees for parking, laundry facilities, pet rents, and any other income-generating aspects of the property. By considering all sources of income, EGI provides a more accurate reflection of the total financial performance of the property before operating expenses and other deductions. This is crucial for property managers and investors to understand the genuine income-generating capability of a real estate investment, enabling better financial planning and assessment of investment opportunities. In contrast, the other options do not fully capture the essence of EGI. For instance, focusing solely on rent collected would ignore other valuable income streams that contribute to the overall financial health of the property. Similarly, measuring profit after operating expenses or total income less bad debt does not encapsulate the complete picture of revenue generation prior to accounting for any deductions.