What is the exam-ready distinction?
| Roadmap post | 222 of 500 |
|---|---|
| Official syllabus topic | Valuation: Income Approach, Effective Gross Income, and Net Operating Income |
| Official PSI area | Valuation and Market Analysis |
| Published weight | 8% of the 100-question national portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
| Content checked through | August 2, 2026 |
The Rule
PSI publishes a weight for the complete official area, not a guaranteed count for this individual comparison. Use the source, document, actor, event, and timing stated in the question before applying a memorized definition.
Side-by-side comparison
Read across each row. The terms are deliberately compared on identical dimensions so the difference remains clear when the exam hides the vocabulary inside a scenario.
| Decision dimension | Potential gross income | Effective gross income | Net operating income |
|---|---|---|---|
| Meaning | Income at full occupancy and scheduled rent before vacancy loss | Income after vacancy and collection loss plus qualifying other income | Income remaining after operating expenses |
| Formula step | Scheduled rental and other potential income | PGI - vacancy and collection loss + other income as stated | EGI - operating expenses |
| Includes | Full scheduled potential | Expected collected property income | Property-level return before financing and income tax |
| Excludes | Vacancy deduction at this first step | Operating expense deduction at this step | Debt service, owner income tax, book depreciation, and usually capital expenditures |
Decision rule
Georgia-specific distinction
Worked example
Scenario. An apartment property has $180,000 potential rent, $9,000 vacancy and collection loss, $6,000 laundry income, and $62,000 operating expenses.
Reason it through. Effective gross income is $180,000 - $9,000 + $6,000 = $177,000. NOI is $177,000 - $62,000.
Answer. Effective gross income is $177,000 and NOI is $115,000.
Common exam traps
- Calling potential income collected income
- Subtracting operating expenses before finding EGI
- Subtracting debt service from NOI
- Mixing monthly and annual figures
Original practice questions with detailed explanations
These are original instructional questions mapped to the July 1, 2026 PSI outline. They are not copied from PSI or any live examination. Choose an answer before opening the explanation.
Question 1What is subtracted from effective gross income to find NOI?
- A. Mortgage principal in every case
- B. Owner income tax
- C. Operating expenses
- D. Appraised value
Show answer and explanation →
Answer: C. Operating expenses
Operating expenses is correct. Potential gross income assumes full scheduled income before vacancy and collection loss. Effective gross income reflects expected collections after vacancy loss and includes qualifying other property income. Net operating income subtracts operating expenses from effective gross income but does not subtract mortgage debt service or owner income tax. The remaining options, Mortgage principal in every case; Owner income tax; Appraised value, do not match the controlling category or fact.
Question 2An apartment property has $180,000 potential rent, $9,000 vacancy and collection loss, $6,000 laundry income, and $62,000 operating expenses.
- A. NOI is $177,000 because expenses are ignored.
- B. NOI is $109,000 because laundry income is excluded.
- C. Mortgage principal must be subtracted even though none is given.
- D. Effective gross income is $177,000 and NOI is $115,000.
Show answer and explanation →
Answer: D. Effective gross income is $177,000 and NOI is $115,000.
Effective gross income is $180,000 - $9,000 + $6,000 = $177,000. NOI is $177,000 - $62,000. The supported conclusion is: Effective gross income is $177,000 and NOI is $115,000. The other choices replace those controlling facts with a neighboring concept or an unsupported absolute rule.
Question 3What should a candidate identify first when comparing Potential Gross Income Versus Effective Gross Income Versus NOI?
- A. Move down the income statement in order: potential income, vacancy and collection loss, other income, effective gross income, operating expenses, and NOI.
- B. The option with the longest definition, without classifying the facts.
- C. A memorized Georgia rule, even when the question asks for a national concept.
- D. The answer that sounds most favorable to one party, regardless of the document or event.
Show answer and explanation →
Answer: A. Move down the income statement in order: potential income, vacancy and collection loss, other income, effective gross income, operating expenses, and NOI.
Move down the income statement in order: potential income, vacancy and collection loss, other income, effective gross income, operating expenses, and NOI. That sequence identifies the legal category before the label. Definition length ignores the facts, jurisdiction confusion answers a different question, and sympathy cannot replace the document, event, calculation, or governing rule.
Mastery tracking
Mark this distinction mastered only when every statement is true.
- Define every compared term without using the other term as the definition.
- Rebuild the comparison table from memory.
- State the decision rule and Georgia distinction without notes.
- Solve the worked example after changing one controlling fact.
- Explain why every trap and distractor is tempting but wrong.
- Answer all three original questions correctly in mixed practice on a later day.
Recommended next lesson
Continue with Capitalization Rate Versus Gross Rent Multiplier. Continue to roadmap comparison 223.
Return to the complete exam-concept library or the Valuation and Market Analysis hub.