In the calculation of EGI, what is subtracted from Potential Gross Income (PGI)?

In the calculation of Effective Gross Income (EGI), the appropriate figure to subtract from Potential Gross Income (PGI) is Vacancy and Collection Loss. This subtraction reflects the reality that not all projected income from a property will be realized due to factors such as unoccupied rental units and tenants who may fail to pay their rent.

PGI represents the total income a property could generate under full occupancy and without any collection issues. However, to arrive at a more realistic understanding of a property’s income-generating potential, it is essential to account for expected losses from vacancies and non-payment. These factors can significantly impact the actual revenue generated, thus making it crucial to factor them into financial analyses.

Operating expenses refer to the costs needed to maintain and manage the property, while tax assessments are related to property taxes owed. Both of these are important considerations when analyzing a property's financial performance but do not directly affect the calculation of EGI from PGI. Net profits, on the other hand, pertain to the income remaining after all expenses have been deducted and do not play a role in transforming PGI into EGI. The focus on vacancy and collection loss is what distinguishes the calculation accurately for EGI.