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 determine the vacancy cost, we calculate 5% of the potential gross income (PGI) of $450,000, which results in $22,500. This figure represents the revenue lost due to the unoccupied units in the apartment complex.

A ($47,500) YOUR ANSWER

This choice reflects a miscalculation. If 5% of the PGI were $47,500, the total PGI would have to be $950,000, which is not the case here. The correct PGI is $450,000, leading to a much smaller vacancy cost.

B ($2,050) YOUR ANSWER

This figure incorrectly represents a very small percentage of the PGI. Specifically, $2,050 would equate to approximately 0.45% of the PGI ($450,000), which does not align with the 5% vacancy rate stated in the question.

C ($22,500) CORRECT

This is the correct answer, as it accurately reflects 5% of the PGI ($450,000). The calculation is straightforward: 0.05 x $450,000 = $22,500, which clearly illustrates the revenue lost due to vacancy.

D ($32,000) YOUR ANSWER

This choice overestimates the vacancy cost. To arrive at $32,000, one would need to assume a vacancy rate of approximately 7.11%, which does not correspond to the 5% vacancy rate provided in the question.

Conclusion

The vacancy cost of an apartment complex is an essential metric for understanding potential revenue loss due to unoccupied units. In this case, the 5% vacancy rate applied to a PGI of $450,000 results in a vacancy cost of $22,500. Other choices either reflect incorrect calculations or misinterpretations of the vacancy rate, emphasizing the importance of accurate percentage calculations in financial assessments.

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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