Effective rental income is derived from potential rental income by considering what factors?

The effective rental income is calculated by taking the potential rental income and adjusting it for factors that can reduce the income actually received, which includes vacancy and credit losses.

Vacancy losses occur when a property is unoccupied and therefore not generating income during that period. This is an important consideration because many properties experience some level of vacancy at various times. Credit losses arise when tenants fail to pay their rent, which can significantly impact the overall income from a rental property.

By accounting for these losses, landlords and property managers can arrive at a more realistic figure for effective rental income. This figure represents the amount of income they can expect to receive after accounting for the uncertainty of tenant occupancy and reliability of payments. Understanding these factors is crucial for making informed decisions about property investments and management strategies.