What is the result of subtracting the product of GRM and the capitalization rate from one?

• A. Expense and Vacancy Rate (EVR) = 1 - GRM x the Ro
• B. Gross Operating Income
• C. Net Operating Income
• D. Cap rate

Answer: (A)

The expression tests how the gross income picture and return rate relate to expenses and vacancies. Start with GRM defined as value divided by potential gross income (PGI), and cap rate Ro as net operating income (NOI) divided by value. Multiplying them gives GRM × Ro = (Value / PGI) × (NOI / Value) = NOI / PGI.

Subtracting this from one yields 1 − (NOI / PGI) = (PGI − NOI) / PGI. Since PGI is the total potential gross income and NOI is what remains after expenses, PGI − NOI represents the expenses plus vacancy (the portion of PGI absorbed by operating costs and vacancies). Therefore, 1 − GRM × Ro equals the Expense and Vacancy Rate relative to PGI. This is why the correct interpretation is the expense and vacancy component, not GOI, NOI, or the cap rate itself.