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Potential Gross Income
Potential gross income refers to the maximum rental revenue that a real property can generate for a whole year, assuming that there are no vacancies and no problems with collection.
This income does not include any other sources of income which a building could generate.
This figure is a useful number for investors and market watchers to calculate how much returns a property can be, and how well it is performing against the market.
Sometimes known as gross possible rent, it also enables one to calculate a budget for expenses.
When working out a budget for the year, the potential gross income minus projected losses from vacancies and collection would be equal to the effective gross income.
Sometimes potential gross income is calculated by adding the total rental income to any concession income.
An expense ratio is a ratio of operating expenses against potential gross income.
It should not be confused with cash flow and operating income.
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