Gross scheduled income provides insight into the optimum performance of a property and the expected returns with full occupancy. Read on to learn how to calculate this number and for tips on when and how to implement it.
Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More.
What Is Gross Scheduled Income
Gross scheduled income, also called gross potential income, refers to the total income a property could generate assuming 100 percent occupancy. Unlike gross potential rent, gross scheduled income considers all sources of income, including vending machines, parking fees, and even coin-operated laundry machines.
How to Calculate Gross Scheduled Income
Compared to other real estate metrics, calculating gross scheduled income is relatively easy.
Multiply the monthly rents for all occupied units by 12 to find the annual income. Then, determine the monthly amount that all unoccupied units would rent for and multiply that amount by 12 as well.
Next, determine the monthly revenue from all non-rent sources. Multiply that figure by 12 as well, and then add up all three totals. The sum is your annual gross scheduled income.
(Monthly rent for all occupied units * 12 = A)
(Monthly rent for all unoccupied units * 12 = B)
(Monthly revenue from all non-rent * 12 = C)
(A+B+C= Annual Gross Scheduled Income)
Some investors leave additional sources of income out of the gross scheduled income calculation. If you are reviewing figures provided by someone else, you may want to clarify how they calculated their gross scheduled income.
Gross Scheduled Income vs. Effective Scheduled Income
Because gross scheduled income reflects ideal, optimum conditions that may never be met, many investors prefer to work with the effective scheduled income, also known as the gross operating income. As with any real estate metric, the more information a formula considers, the more accurate and realistic it will be.
Effective scheduled income includes rental income and any other income generated, but it does not assume 100 percent occupancy. Instead, it subtracts vacancies, credit losses, and losses to lease from the income.
You can calculate vacancies by applying the average vacancy rate in your market to the subject property. In 2021, the national average vacancy rate hovers around five percent, so we will use this as an example. Simply apply the local vacancy rate to the number of units of the subject property. For example, if a property has 100 units, a five percent vacant rate means five units are not occupied. Subtract the rent from those five units from the expected income.
(Occupancy * (0.05) = A)
(A * Rent = B)
(Expected Income – B = Effective Scheduled Income)
Keep in mind that even if properties consistently have tenants in every unit, some vacancies inevitably occur during the turnover period between the old and new tenants.
Credit loss refers to the income loss that happens when a tenant fails to pay rent or only pays a portion of the rent due. Loss to lease happens when you offer tenant’s a promotion like a free month of rent for signing a lease.
How to Use Gross Scheduled Income
Gross scheduled income provides a way to measure a property’s income potential easily, and investors don’t have to put a lot of effort into finding out financial details to manage this.
The gross scheduled income reveals the ceiling or highest income potential in its current state. When compared to the effective scheduled income, investors can get a realistic idea of the income growth potential for the property in its current condition.
Suppose there is a significant difference between gross scheduled income and effective scheduled income. In that case, that indicates that there is room to make changes that lead to higher occupancy and increasing rent.
Conversely, when the gross scheduled income and effective scheduled income are relatively close, the property is already performing at a high level. There will be little opportunity for rent growth without significant remodeling or renovation.
Gross Scheduled Income Use in Other Metrics
Gross scheduled income serves as base information for other useful real estate equations, like the gross rent multiplier.
The gross rent multiplier is used to determine an income-producing property’s market value based on its gross scheduled income. So, first, calculate the gross rent multiplier based on the price at which similar properties were sold or the market value and divide that by the gross scheduled income.
(Market Value ÷ Gross Scheduled Income = Gross Rent Multiplier)
Then, use the gross rent multiplier to find the market value for the subject property by multiplying the gross rent multiplier by the gross scheduled income. The resulting product is the market value.
(Gross Rent Multiplier * Gross Scheduled Income = Market Value)
Final Thoughts
Gross scheduled income is one preliminary metric used to evaluate a property’s potential, but it paints a limited picture for investors searching for a new property. To better understand a property’s room for rent growth, compare the gross scheduled income to the effective scheduled income to know how much room for growth there is through rent increases and improved occupancy.
Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More.
