An apartment complex has a vacancy rate of 5%. If the apartment's PGI is $450,000, what is the apartment's vacancy cost?

Rationale

The apartment's vacancy cost is $22,500.

To calculate the vacancy cost, multiply the Potential Gross Income (PGI) by the vacancy rate. In this case, $450,000 multiplied by 5% (or 0.05) equals $22,500, representing the income lost due to vacancies.

A ($22,500) CORRECT

This choice is correct because it accurately represents the vacancy cost calculated by taking 5% of the PGI of $450,000. The calculation is straightforward: $450,000 * 0.05 = $22,500.

B ($47,500) YOUR ANSWER

This choice incorrectly assumes a vacancy cost based on a different percentage or miscalculation. If we were to derive this amount, it would imply a vacancy rate of approximately 10.56%, which does not correspond to the stated vacancy rate of 5%.

C ($32,000) YOUR ANSWER

This option also does not reflect the correct calculation of vacancy cost. It suggests a vacancy cost derived from an incorrect percentage or a misunderstanding of the PGI. The correct figure derived from the PGI and the given vacancy rate is much lower.

D ($2,050) YOUR ANSWER

This choice is significantly lower than the calculated vacancy cost. To arrive at this figure would require a vacancy rate of about 0.45%, which is inconsistent with the 5% vacancy rate provided in the question.

Conclusion

The vacancy cost for the apartment complex is determined by multiplying the PGI by the vacancy rate. With a PGI of $450,000 and a vacancy rate of 5%, the correct vacancy cost is $22,500. Other options either miscalculate the percentage or reflect an incorrect understanding of the relationship between PGI and vacancy costs. Understanding these calculations is essential for effective property management and financial planning in real estate.

An apartment complex has a vacancy rate of 5%. If the apartment's PGI is $450,000, what is the apartment's vacancy cost?

The apartment's vacancy cost is $22,500.

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