# What Is Gross Potential Income in Real Estate?

Gross potential income plays an important role in analyzing an investment property further.

[Updated: Mar 04, 2021 ] Jun 01, 2020 by Liz Brumer
Get our 43-Page Guide to Real Estate Investing Today!

Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.

*By submitting your email you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

In real estate investing, there are a number of different factors that help an investor determine the viability and profitability of a particular investment. One of those factors is the gross potential income of a property. If you plan to invest in commercial real estate or rental property, learn what gross potential income is, how to calculate it, and how it's used in real estate.

## Gross potential income defined

Gross potential income (GPI) refers to the total rental income a property can produce if all units were fully leased and rented at market rents with a zero vacancy rate. Gross potential income can also be referred to as potential gross income, gross scheduled income, or gross potential rent.

The GPI of a property is a pro forma projection and does not take into account the actual rent of the property, the average vacancy rate for the area or property type, any operating expense, or any debt service relating to owning the property. It's the income a property could potentially produce, not what it actually would produce.

## How to calculate gross potential income

Calculating the gross potential income of a property is actually quite simple. Determine the current market rent by looking at comparable properties, and multiply the rent amount by the number of rental units. For example, if you want to know the potential gross income of a 10-unit apartment with five two-bedroom units that each have a target rent of \$1,050 and five one-bedroom units that each have a target rent of \$800 the GPI would be calculated as follows:

\$1,050 x 5 = \$5,250

\$800 x 5 = \$4,000

\$5,250 + \$4,000 = \$9,250 (GPI)

## How it's used in real estate

Gross potential income is used to help a real estate investor or lender underwriting a loan determine the effective gross income (EGI) of a property. The EGI uses the gross potential income of the property in addition to any extra potential income, such as laundry fees, pet fees, or parking fees, while subtracting vacancy costs to determine the net income of the investment property. The EGI can then be used to calculate the value of the property by calculating its net operating income (NOI) or cap rate or helping the lender determine the debt service coverage ratio.

A property's GPI is important to know but is not necessarily a realistic income for the landlord to collect. Rather it's a helpful calculation that can be used to further analyze the profitability of an investment property.

## Unfair Advantages: How Real Estate Became a Billionaire Factory

You probably know that real estate has long been the playground for the rich and well connected, and that according to recently published data it’s also been the best performing investment in modern history. And with a set of unfair advantages that are completely unheard of with other investments, it’s no surprise why.

But those barriers have come crashing down - and now it’s possible to build REAL wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individuals like you.