What component is deducted from annual gross income to arrive at effective gross income?

Effective gross income is an important metric in real estate that reflects the actual income a property generates after accounting for losses. Specifically, vacancy and rent loss need to be deducted from the annual gross income to determine effective gross income.

When a property is not fully rented or when tenants do not pay their rent, these factors can lead to a significant reduction in the income that the property generates. Vacancy refers to the physical unoccupied units, while rent loss accounts for the revenue that is not collected due to non-payment by tenants. Therefore, adjusting the annual gross income by subtracting these losses gives a clearer picture of the property's income potential.

Operating expenses, tax assessments, and market fluctuations are important considerations in overall property management and financial analysis but do not directly relate to the calculation of effective gross income. Operating expenses are costs incurred in the operation of the property, tax assessments relate to property taxation levels, and market fluctuations can affect property value and rental demand but do not directly influence gross income adjustments for vacancies and rent losses.