GPR: Gross Potential Rent
What Is Gross Potential Rent?
Gross potential rent, often referred to as simply GPR, represents the maximum amount of rental income that an owner or investor can expect to generate from a property over a specific time period. Unlike the data from a rent roll, which compiles all active rents from a property (among other things), the gross potential rent calculation assumes 100% occupancy. GPR is calculated by multiplying the market rent by the total number of units.
To better illustrate gross potential rent, imagine a property with 15 units. Each of these units has a market rent of $4,000 a month. This property would have a monthly GPR of $60,000.
$4,000 x 15 = $60,000
GPR can be calculated for longer periods through the additional step of accounting for the number of months the GPR is desired to represent. For example, we now know this property has a monthly GPR of $60,000, so its gross potential rent over a three-month period would be $180,000 ($60,000 x 3). To determine market rent price, an investor should look at comparable properties in the same market in order to formulate an accurate estimate. Comparing similar properties in this manner is doubly useful, as understanding relevant market data also helps an investor more accurately project an asset’s profitability.
Gross Potential Rent vs. Gross Potential Income
Gross potential rent is often confused with gross potential income, or GPI. The two calculations are similar, but there is a key difference in which factors are actually measured. While GPR only includes rental income, GPI also incorporates potential income from parking fees, vending machines, and other ancillary income sources.
Related Questions
What is GPR in commercial real estate?
GPR, or gross potential rent, is the maximum amount of rent money an owner or investor can expect to make from a property during a specific time period. Unlike a rent roll, which compiles all current rents from a property, gross potential rent assumes 100% occupancy. It is calculated by adding together the market rent of every unit in a project.
For example, a property with 15 units, each with a market rent of $4,000 a month, has a monthly GPR of $60,000. In order to determine market rent, an investor should look at similar properties in the same area for an accurate estimate. By doing this, the investor gets a good idea of a property’s profitability before they decide to purchase it.
In addition to GPR and rent roll, investors may also want to look a projects TTM (trailing twelve months) and T3 (trailing three months) financial numbers in order to determine its profitability.
What factors affect GPR in commercial real estate?
GPR, or gross potential rent, is the maximum amount of rent money an owner or investor can expect to make from a property during a specific time period. Factors that affect GPR include the market rent of each unit in a project, the number of units in the project, and the area in which the property is located. In order to determine market rent, an investor should look at similar properties in the same area for an accurate estimate. By doing this, the investor gets a good idea of a property’s profitability before they decide to purchase it.
In addition to GPR, investors may also want to look a projects TTM (trailing twelve months) and T3 (trailing three months) financial numbers in order to determine its profitability.
How is GPR calculated in commercial real estate?
GPR, or gross potential rent, is the maximum amount of rent money an owner or investor can expect to make from a property during a specific time period. It is calculated by adding together the market rent of every unit in a project. For example, a property with 15 units, each with a market rent of $4,000 a month, has a monthly GPR of $60,000. In order to determine market rent, an investor should look at similar properties in the same area for an accurate estimate. By doing this, the investor gets a good idea of a property’s profitability before they decide to purchase it.
Gross potential rent is often equated with gross potential income (GPI), which, in practice, is often the same, but sometimes incorporates potential income from parking spaces, vending machines, and other ancillary income sources. Another related term, effective gross income (EGI), is calculated by taking a property’s gross potential income, and subtracting all physical and economic vacancies.
Since it's common in commercial real estate to calculate rent per square foot, you can use a property's GLA to calculate the gross potential rent (GPR) of the property. For example, if the annual market rent for a certain building is estimated at $10/square foot, and the building's GLA is 20,000 square feet, then the annual GPR of the building would be $200,000.
However, it's important to remember that GPR is the most a project could make in rent. And, since buildings are rarely at 100% occupancy, most make significantly less. Therefore, if you plan to acquire commercial real estate, it may be more effective to look at the building's rent roll (a record of all current leases and rental income), and its TTM (trailing twelve months), or T3 (trailing three months) financial metrics.
What are the benefits of GPR in commercial real estate?
GPR, or gross potential rent, is a useful metric for investors to understand the potential profitability of a property. It is calculated by adding together the market rent of every unit in a project, and assumes 100% occupancy. This allows investors to get a good idea of a property’s profitability before they decide to purchase it.
In addition to GPR, investors may also want to look at a project's TTM (trailing twelve months) and T3 (trailing three months) financial numbers in order to determine its profitability. These metrics provide insight into a property's current rental income, income changes over time, and expenses that could cut into a property's potential profitability.
What are the risks associated with GPR in commercial real estate?
GPR is a useful metric for understanding the potential profitability of a property, but it is important to remember that it is an estimate and not a guarantee. GPR does not take into account vacancies, non-paying tenants, or other expenses that could cut into a property’s potential profitability. It is also important to look at a property’s rent roll, T3, and T12 financial numbers in order to get a more accurate picture of its potential profitability.
In addition, GPR does not take into account any potential changes in the market that could affect a property’s rental income. For example, if a new development is built in the area, it could cause a decrease in rental rates and a decrease in the property’s GPR.
It is important to consider all of these factors when evaluating a property’s potential profitability. To learn more about your multifamily loan options, fill out the form below to connect with a specialist.