A building has an annual PGI of $800,000. Over the last 5 years, the vacancy rate of the building has been 6%. What is the annual vacancy cost of the building?

Rationale

The annual vacancy cost of the building is $48,000.

To calculate the annual vacancy cost, we multiply the annual PGI by the vacancy rate. In this case, $800,000 multiplied by 6% (or 0.06) gives us $48,000, which represents the lost revenue due to vacant units.

A ($55,000) YOUR ANSWER

This choice incorrectly calculates the vacancy cost, suggesting an amount that exceeds the actual loss. The calculation may have mistakenly applied a higher vacancy rate or miscalculated the percentage of the PGI, leading to an inflated figure that does not reflect the vacancy impact accurately.

B ($32,000) YOUR ANSWER

This option underestimates the vacancy cost by applying an incorrect vacancy rate. It may represent a miscalculation based on misunderstanding the percentage or incorrectly applying the multiplication of the PGI, resulting in a figure that is not supported by the given data.

C ($60,000) YOUR ANSWER

This figure is also incorrect as it overestimates the vacancy cost. It likely arises from using an incorrect vacancy rate, possibly rounding the percentage or misapplying the formula, leading to a result that does not align with the actual PGI and vacancy rate provided.

D ($48,000) CORRECT

This is the correct calculation of the vacancy cost, derived from multiplying the annual PGI of $800,000 by the vacancy rate of 6%. The resulting value accurately reflects the financial impact of vacancies within the property, providing a precise estimate of lost income.

Conclusion

The annual vacancy cost for the building is determined by accurately calculating the product of the PGI and the vacancy rate. In this case, $48,000 is the correct annual vacancy cost, highlighting the importance of precision in financial calculations. The other choices reflect common calculation errors, illustrating the need for careful application of percentages in real estate financial assessments.

A building has an annual PGI of $800,000. Over the last 5 years, the vacancy rate of the building has been 6%. What is the annual vacancy cost of the building?

The annual vacancy cost of the building is $48,000.

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