How is potential gross income (PGI) determined?

Potential gross income (PGI) is a key concept in real estate and property management, representing the maximum income a property could generate if it were fully leased and operating at full efficiency. To determine PGI, one estimates the total income from all sources at full occupancy, without considering any costs or losses that might occur, such as vacancies or collection issues.

Calculating PGI involves looking at the projected rents for all units or spaces in the property, multiplied by the assumption that all units are occupied. This figure serves as a baseline for analyzing the property’s financial performance and is crucial for various financial assessments, such as assessing the viability of real estate investments.

This understanding is fundamental because it sets the stage for other calculations and analyses, such as effective gross income (EGI), which does account for vacancy rates and collection losses, and net operating income (NOI), which deducts operating expenses from EGI.