What is the Potential Gross Income? – vs., Formula, and More
The potential gross income also recognizes as gross scheduled income. The total income property will produce if it fully leases the subject property at the prevailing market rents.
And frankly, the ideal number, often different from the actual rent that the property produces. Specifically, we can not collect gross scheduled income for various reasons, including:
Rent is above or below market.
And the occupancy rate less than 100%.
And some tenants are not paying the rent.
Also, the landlord rebates part of the tenant’s rent.
It also part of the property temporarily not rentable.
Therefore, gross scheduled income, the target number, achievable in some properties and not in others.
Ultimately, as we shall see, gross scheduled income is different from adequate gross income.
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What is the Gross Scheduled Income vs. Effective Gross Income?
- Adequate gross income EGI is different from gross potential income. And the difference involves three main factors that affect rent collections.
1. Expense Reimbursements
- First, tenants pay expense reimbursements. Generally, It includes insurance, maintenance, and real estate taxes. In contrast, the absolute net lease requires the tenant to pay all expenses.
2. Collection and Vacancy Loss
- Secondly, the factor that reduces PGI to EGI collection and vacancy loss. And collection loss the projected amount of rent that we won’t able to collect for the period.
And alarmingly, this can stem from various factors, such as rent strikes, squatters, evictions, and deadbeats.
- Also, vacancy loss occurs when we can’t rent out all of our available units. Alternatively, someone can move out before there the replacement tenant.
- During the lease-up phase of the new property, we must recruit and sign new tenants.
- It obviously, and takes time, which creates vacancy loss. And clearly, we hope to stabilize the property at 100% occupancy as soon as possible.
3. Additional Income
- Thirdly, other income sources impact EGI. These include laundry machines, vending machines, parking, storage units, pet fees, late fees, etc.
- Mainly, we can estimate the EGI factors using industry benchmarks, comparable properties.
- And historical performance, the judges consider all these factors when evaluating properties.
What is the Potential Gross Income Formula?
- The formula for PGI :
- PGI = Σ (market-level rent per unit x number of teams at that rent)
- Σ means sum.
- It covers all cases in which different units take the same and different rents.
How Calculate the Gross Scheduled Income?
- Here how we calculate gross scheduled income. In the spreadsheet, please list all of our units in Column A.
- For column B, enter the monthly rent for each unit. For Column C, but the product of 12 times B. Finally, sum Column C to arrive at the gross scheduled income.
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