What does potential gross income represent?

Potential gross income is a specific term in real estate that refers to the total income a property could generate if it were fully leased at market rates, without accounting for any vacancies, concessions, or operating expenses. This figure represents an ideal scenario where every rental unit is occupied and generating the maximum possible income based on market conditions.

This answer is correct because it captures the essence of potential gross income as a measure of a property’s maximum earning capacity under full occupancy. This figure is used by investors and property managers to assess the potential profitability of a real estate investment and is foundational in income property analysis.

The other options present different income computations or considerations. For instance, net revenue after accounting for losses from vacancies would define effective gross income, which is a step down from potential gross income. Current income from existing tenants focuses on what is actually being received, rather than what could potentially be received. Predicting income for the next fiscal year offers a forecast, which is based on assumptions and trends rather than the actual maximum earning potential of the property at present. Understanding these distinctions is crucial for effective property management and investment analysis.