Potential gross income of an investment property is defined as what?

Potential gross income (PGI) refers to the total income an investment property could generate if it were fully rented out at market rates, without any deductions for expenses or vacancies. This figure is important for investors because it provides a baseline for assessing the property's income-earning potential.

The correct answer highlights that PGI is derived from market rent, which is the amount that could reasonably be charged for occupancy in a competitive market. Additionally, the definition includes other building income, which can encompass various sources of revenue associated with the property, such as fees from parking, laundry facilities, or other amenities. By considering both market rent and additional income streams, you gain a comprehensive view of the property's potential to generate income.

Understanding this definition helps in accurately assessing an investment's financial performance, as PGI is often the starting point for calculating other important metrics, such as effective gross income (after accounting for vacancies) and net operating income. This context is critical for anyone involved in real estate investment or management, as it informs decision-making regarding property purchases, valuations, and operational strategies.