What is Gross Scheduled Income?

By: Farhan Mahmood, Managing Director of Acquisitions

When searching for commercial real estate investment opportunities, the more tools you have at your disposal, the better. This includes methods and calculations used to evaluate potential acquisitions, often based on cash flow, operating income, gross income, and other financial metrics. One of these calculations is called Gross Scheduled Income, which is used by investors to determine the viability of a potential acquisition property.

Gross scheduled income is not a perfect method, but it can give insight into how well a property will perform when things are running smoothly, and can be used in conjunction with the Gross Rent Multiplier and other metrics to quickly winnow down potential property acquisitions by looking only at the total income generated by a property.

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Gross Scheduled Income: A Definition

Gross Scheduled Income refers to the amount of cash generated by a commercial property, with the assumption that the property is at full capacity, with no vacant units. While other metrics, like Gross Potential Rent, seek to determine cash flow from rents, GSI takes into account other revenue streams, like income from moving supplies, vending machines, parking spaces, and other optional amenities or services. Gross scheduled income is sometimes referred to as GPI or Gross Potential Income.

Gross Scheduled Income vs. Effective Gross Income

Effective Gross Income is another metric used by commercial real estate investors to determine the true income from a property or portfolio. Effective gross income is calculated by taking the Gross Scheduled Income of a property, subtracting any vacancies and adding ancillary income such as laundry income, utility reimbursement and application fees.

Additionally, investors need to deduct any credit losses, which refers to the loss property owners take when a tenant does not pay their rent. Effective Gross Income is often used in the calculation of the Net Operating Income or of a property, which is a fundamental metric for any commercial real estate deal.

Gross Scheduled Income vs. Net Operating Income

New investors often conflate gross scheduled income and net operating income. Both metrics describe the revenue stream from a property, the difference between the two is that the gross scheduled income represents all of the possible income generated by a property with no vacancy, including any additional revenue streams like parking spaces, moving supplies, etc., whereas net operating income refers to the annual income generated by a property after deducting the income collected from management and ongoing operations, as well as deducting any expenses. Net operating income is the real estate version of EBITDA.

How Gross Scheduled Income Helps Calculate Gross Rent Multiplier

When calculating the Gross Rent Multiplier, remember that you use gross scheduled rents plus additional income sources, without taking vacancies into account. This is different from Net Operating Income, which uses the total income of the property minus expenses from vacancies and ongoing operations. So, how does gross scheduled income help calculate the Gross Rent Multiplier? By deducting a vacancy rate from it and dividing it into the purchase price of a property.

How to Calculate Gross Scheduled Income

Calculating the Gross Scheduled income is relatively straightforward. You take the monthly rents for occupied units and multiply that number by 12 to get a full year’s worth. If a unit is vacant, determine what they would rent for under current market conditions and multiply that number by 12 and add it to the calculation above. Put another way, it is the sum of the total potential annual rental income per unit in a building. Your last step is to add any additional income generated by the property, things like vending machines, parking spaces, moving supplies, etc. The calculation should look something like this when you are finished:

Gross Scheduled Income
=
Total potential annual rents from all units + income generated by ancillary revenue streams

Why Gross Scheduled Income is an Important Metric

Gross Scheduled Income is important because it gives investors a way to quickly and accurately measure the income potential of a property without having to spend too much time digging into financials. Additionally, by setting a ceiling on total potential income it allows investors to assess what kind of economic vacancy rates there are in a property.

In addition, you need to remember that when you’re searching for investment properties, you are not just looking at the physical asset, you are looking at the underlying business. In any situation where an income-generating property is being sold looking at the top-line potential will help cap projections so that you remain within realistic limits when determining if a property is worth further investigation ahead of an acquisition.

Conclusion – A Vital Tool

Whether you’re searching for investments in real estate, equities, commodities, or income generating or appreciating properties, you want to have as many effective tools at your disposal as possible. Calculating the Gross Scheduled serves as a baseline from which other metrics can be calculated to give you a glimpse into the viability of a property, without a whole lot of work. Once you’ve used these metrics to locate a property you can do a more significant dive into the relevant financials.

Find out how to use Gross Scheduled Income to calculate Gross Rent Multiplier here.

Posted By Farhan Mahmood, Managing Director of Acquisitions

Farhan Mahmood is responsible for sourcing, structuring and financing Trion Properties investment opportunities. He has over 12 years of commercial real estate experience in valuation, disposition and acquisitions of numerous property types nationwide.

Since joining Trion Properties, Mahmood has successfully initiated acquisitions of non-performing loans, REOs and value-add multi family and commercial projects that have led to stellar returns for Trion investors.