CTN PRESS

CTN PRESS

NEWS & BLOGS EXCLUCIVELY FOR INFORMATION TO ENGINEERS & VALUERS COMMUNITY

UNDERSTANDING POTENTIAL GROSS INCOME

UNDERSTANDING POTENTIAL GROSS INCOME

Potential Gross Income (PGI) is the total income a property can generate if it were fully leased and there were no vacancies or rent defaults. PGI is an essential component of the income approach to property valuation, which is a method used by real estate appraisers to determine the value of income-producing properties.

Calculating PGI involves adding up the total annual rental income that a property can generate from all its rentable units. The formula for PGI is:

PGI = Gross Rental Income + Other Rental Income

Gross Rental Income includes all rental income from the property’s rentable units, including base rent and any additional charges such as parking fees or utility fees. Other Rental Income includes income from sources other than rent, such as income from laundry facilities, vending machines, or storage rentals.

PGI is a crucial metric in real estate valuation because it represents the total income potential of an income-producing property. It is used as the starting point for estimating the net operating income (NOI) of a property, which is the total income generated by the property after deducting operating expenses.

The income approach to property valuation takes into account the PGI, operating expenses, and other factors such as the property’s location, condition, and market demand to arrive at an estimated value. The goal is to determine the property’s value based on the income it can generate for the owner, rather than relying solely on comparable property sales.

In summary, calculating PGI is important for the income approach to property valuation because it provides an estimate of the total income a property can generate. This information is essential for real estate appraisers, investors, and lenders who need to assess the value and potential profitability of an income-producing property.

Here are some key points to remember about Potential Gross Income (PGI):

  1. PGI is the total income a property can generate if it were fully leased and there were no vacancies or rent defaults.
  2. To calculate PGI, you need to add up the Gross Rental Income and Other Rental Income.
  3. Gross Rental Income includes all rental income from the property’s rentable units, while Other Rental Income includes income from sources other than rent.
  4. PGI is a crucial component of the income approach to property valuation, which is used to determine the value of income-producing properties.
  5. PGI is used as the starting point for estimating the net operating income (NOI) of a property, which is the total income generated by the property after deducting operating expenses.
  6. The income approach to property valuation takes into account PGI, operating expenses, and other factors such as the property’s location, condition, and market demand to arrive at an estimated value.
  7. PGI is important for real estate appraisers, investors, and lenders who need to assess the value and potential profitability of an income-producing property.
  8. PGI is a theoretical figure that assumes the property is fully leased and there are no vacancies or rent defaults. Therefore, it may not always reflect the actual income generated by the property.

error: Content is protected !!
Scroll to Top