Which statement best defines Potential Gross Income (PGI)?

Which statement best defines Potential Gross Income (PGI)?

• A. PGI is the actual earnings after vacancies and credit losses.
• B. PGI is the total income the property would generate at full occupancy at market rents, before vacancy and losses.
• C. PGI is the net operating income after operating expenses.
• D. PGI is the value of the property based on income.

Answer: (B)

Potential Gross Income is the total income the property would generate if every unit were rented at current market rents and all other potential income is earned, with 100% occupancy and before subtracting vacancies or credit losses. This is the top-line revenue figure, representing the earning potential without factoring in vacancies or losses. It differs from actual or expected earnings after vacancies (which reduce income), and from net operating income (which subtracts operating expenses). It also isn’t the value itself; the value comes from applying a capitalization rate to income (often using NOI). So the statement describing full occupancy at market rents before vacancy and losses best defines PGI.

Potential Gross Income is the total income the property would generate if every unit were rented at current market rents and all other potential income is earned, with 100% occupancy and before subtracting vacancies or credit losses. This is the top-line revenue figure, representing the earning potential without factoring in vacancies or losses. It differs from actual or expected earnings after vacancies (which reduce income), and from net operating income (which subtracts operating expenses). It also isn’t the value itself; the value comes from applying a capitalization rate to income (often using NOI). So the statement describing full occupancy at market rents before vacancy and losses best defines PGI.