What constitutes Net Income in real estate valuation?

Net Income in real estate valuation is calculated as Effective Gross Income less Operating Expenses. Effective Gross Income is the total income generated by a property after accounting for vacancy and collection losses, while Operating Expenses include all costs associated with operating and maintaining the property. This measure is crucial because it provides a clearer picture of the cash flow generated by a property, which is essential for potential investors or appraisers assessing the property's financial performance.

The other options describe different financial metrics or calculations that do not accurately define Net Income. For instance, the definition of Potential Gross Income minus deductions for vacancy and loss focuses on gross income before expenses, but does not address the costs associated with operating the property. Similarly, using the Gross Rent Multiplier minus management fees misrepresents how income should be analyzed since it involves a comparison against market rent rather than a calculation of net operating income. Lastly, stating annual revenue minus service costs could apply to various types of revenue-generating assets, but does not specifically align with real estate valuation terminology.