What does potential gross income refer to in real estate?

Potential gross income refers specifically to the expected rental income that a property could generate if it were fully occupied for an entire year. This concept is crucial for real estate investors and property managers as it establishes a baseline for evaluating the financial performance of a property.

By focusing on full occupancy, potential gross income provides a clear picture of the maximum revenue a property can produce under ideal circumstances. It does not take into account any vacancies, collection losses, or operating expenses that might affect the actual income. Instead, it serves as a target to assess how effectively the property is managed and to forecast future income potential.

This measure is foundational in calculating other key financial metrics, such as effective gross income and net operating income. Understanding potential gross income helps investors make informed decisions about property pricing, investment strategies, and overall market viability.