You are considering the purchase of a small office building in Brooklyn. The property contains 20,000 square feet of rentable space and is currently occupied by multiple tenants each with differing maturities on their respective leases. The vacancy rate is 6%. No lease is currently shorter than 1 year. The annual rent in the 1^st year of ownership is $45/sq ft. You will hire a management firm to collect the rent which will charge you collection costs of 2% per dollar of rent.

1. What is the Potential Gross Income (PGI) for the first year?

2. What is the Effective Gross Income (EGI) for the first year?

** For number two, would you subtract the 6% vacancy?**