Which factor is crucial for determining the effective gross income of a property?

The occupancy rate is a crucial factor for determining the effective gross income of a property because it directly influences the amount of rental income that can be generated. Effective gross income is calculated by taking the potential gross income (the total income a property could generate if fully rented) and subtracting any losses due to vacancies and credit losses. The occupancy rate, which reflects the percentage of rented units versus total available units, is instrumental in assessing these losses. A higher occupancy rate indicates that more units are tenanted, thus maximizing income and minimizing vacancy losses, leading to a higher effective gross income. Conversely, a lower occupancy rate would result in reduced income, emphasizing the importance of this metric in property valuation and income analysis. While building size, location, and construction age can influence a property's desirability and, consequently, its income potential, they do not directly determine the effective gross income as the occupancy rate does.