Question

When appraising small residential income properties, we typically use a multiplier. Most of the time, when utilizing multipliers we are using gross rent or income to arrive at an indication of value.

Gross rent is usually expressed as a monthly figure, while gross income is an annualized figure.

Gross income is simply the total of the rents for the whole year, plus any other income from the property operation. If I rented an office for $2,000 a month, the gross income would $24,000 per year. If I rented each unit of a six-unit building for $800 a month, the gross income would be $800 x 6 x 12 = $57,600.
a) True
b) False

Answer 1

The calculation of gross income as described, using the rental income from an office or a six-unit building, is correct with annual gross incomes of $24,000 and $57,600 respectively.

Step-by-step explanation:

When appraising small residential income properties, a common practice is to use multipliers based on gross rent or gross income. Gross rent is typically a monthly figure while gross income is an annualized figure, derived from adding up all the income that the property generates over a year, including the total rents and any other operational income. For example, if you rent an office for $2,000 a month, the gross income would indeed be $2,000 x 12, providing an annual income of $24,000. Similarly, for a six-unit building with each unit rented at $800 a month, the gross income would correctly be calculated as $800 x 6 units x 12 months, equaling $57,600.

Therefore, the statement 'If I rented an office for $2,000 a month, the gross income would $24,000 per year. If I rented each unit of a six-unit building for $800 a month, the gross income would be $800 x 6 x 12 = $57,600' is true.