What Is Gross Potential Rent (GPR)?
Gross Potential Rent (GPR) is the maximum rental income a property would generate if every unit were leased at market rent with zero vacancy, zero concessions, and zero collection loss. It represents the theoretical revenue ceiling and serves as the starting point for calculating Effective Gross Income and NOI.
// GPR Formula
GPR = Total Units x Market Rent per Unit x 12
// Multi-type example
GPR = (60 x $1,300 x 12) + (40 x $1,600 x 12) = $1,704,000
How Do You Calculate GPR?
Calculate GPR by multiplying each unit type's count by its market rent (not in-place rent), then annualizing the total. For properties with multiple floor plans, calculate each unit type separately and sum the results.
| Unit Type | Count | Market Rent | Monthly GPR | Annual GPR |
|---|---|---|---|---|
| 1BR / 1BA (650 sf) | 60 | $1,300 | $78,000 | $936,000 |
| 2BR / 2BA (950 sf) | 40 | $1,600 | $64,000 | $768,000 |
| Total (100 units) | $142,000 | $1,704,000 | ||
The market rent for each unit type should come from comparable properties in the submarket, adjusted for amenities, condition, and location. The NAA Income Survey provides average rent data by market that can serve as a benchmark.
What Is the Difference Between Physical and Economic Occupancy?
Physical occupancy counts units with signed leases. Economic occupancy measures the percentage of GPR actually collected. The gap between them reveals revenue leakage that physical occupancy alone cannot capture.
| Metric | Measures | Example |
|---|---|---|
| Physical Occupancy | Leased units / Total units | 95 of 100 units leased = 95% |
| Economic Occupancy | Actual collections / GPR | $1,534,000 collected / $1,704,000 GPR = 90% |
A property can show 95% physical occupancy while running at only 88% economic occupancy. The 7-point gap comes from tenants paying below market rent (loss to lease), concessions, and delinquent accounts. Economic occupancy is the number that matters for underwriting because it reflects actual cash collected.
How Does GPR Flow Into EGI and NOI?
GPR is the top of the income waterfall. Every subsequent adjustment brings the number closer to reality until you reach NOI.
- Step 1: Start with GPR (all units at market rent, 100% occupied)
- Step 2: Subtract loss to lease (in-place rents below market)
- Step 3: Subtract vacancy loss (empty units)
- Step 4: Subtract concessions (free rent, discounts)
- Step 5: Add other income (parking, laundry, pet rent, RUBS)
- Result: Effective Gross Income (EGI)
- Step 6: Subtract operating expenses from EGI
- Result: Net Operating Income (NOI)
What Are Common GPR Mistakes?
The biggest mistake is using in-place rents instead of market rents for GPR. This understates the revenue ceiling and obscures the loss to lease opportunity in value-add deals.
- Using in-place rents instead of market rents (understates GPR and hides the loss-to-lease gap)
- Forgetting to calculate GPR by unit type (a blended average masks unit-level revenue differences)
- Using asking rents from listings instead of achieved rents from signed leases
- Ignoring unit mix changes from renovations (classic vs renovated units at different market rents)
- Not updating market rents quarterly (stale comps lead to stale GPR)
HUD Fair Market Rents provide a baseline reference for rental rates by metropolitan area, though actual market rents for institutional properties typically exceed HUD FMR levels. Use local comp surveys for more accurate GPR calculations.