Question

1. Circle all of the true statements:
   1. An increase in Cap Ex will decrease NOI
   2. If a tenant does not pay their portion of the water CAM, the utility company will penalize that tenant
   3. Management fees for managing a building are only incurred if a third party manager is hired
   4. Gross potential revenue does not include vacancy
   5. None of the above

Answer 1

Answer: d. Gross potential revenue does not include vacancy

Explanation:

• Gross potential revenue is defined as total rental income from the property at fully leased at market rate with zero vacancy rate. So, Gross revenue consider a full occupancy rate.
• For example, if a property has 25 units and market annual rent of each unit is $ 8,000. Then Gross Potential Revenue = 25 * $ 8,000 = $ 200,000
• Gross potential revenue is first piece of information about profitability of a property.
• NOI does not include capital expenditure. So, capital expenditure does not have impact on operating expense.
• Utility company will penalise the registered user of the water connection, which will be owner of property.
• Management fee is incurred even if it is managed with internal staffs.