Glossary
Gross Potential Rent (GPR)
Gross potential rent (GPR) is the total annual rent a property would generate if every unit or suite were leased and paying full market or contract rent, with no vacancy, concessions or collection losses. It is the top line of a real estate operating pro forma, from which vacancy and credit loss are deducted.
Formula
Example
A 100-unit apartment property has 60 one-bedroom units at a market rent of $1,400 per month and 40 two-bedroom units at $1,800. Monthly GPR = (60 x $1,400) + (40 x $1,800) = $84,000 + $72,000 = $156,000. Annual GPR = $156,000 x 12 = $1,872,000. Vacancy, concessions, loss to lease and credit loss are then deducted to reach effective gross income.
How it is used in underwriting
GPR anchors the income side of real estate underwriting. Underwriters build it from the rent roll, using either contract rents for occupied units plus market rents for vacant units, or market rent for every unit with a separate line for loss to lease. Showing GPR at market and deducting loss to lease makes the gap between in-place and market rents visible, which is the core of many value-add business plans. Each deduction from GPR, including vacancy, concessions, non-revenue units and bad debt, is then tested against the property's history and the submarket.
The key mistake is overstating market rent. If market rents are taken from a seller's marketing package or from newer competing properties, GPR, and everything below it, will be inflated. Underwriters should support market rents with recent leases at the property and rent comparables. GPR also differs by property type: for apartments it is a unit by unit calculation, while for commercial properties it includes base rent plus contractual escalations, and expense reimbursements are often shown separately. GPR is not income actually received; never apply a cap rate or DSCR to GPR without first deducting vacancy and expenses.
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Frequently asked questions
What is the difference between gross potential rent and effective gross income?
Gross potential rent assumes every unit is leased at full rent. Effective gross income subtracts vacancy, concessions and credit loss from GPR and adds other income such as parking or laundry. EGI represents income the property can realistically collect, while GPR is a theoretical maximum.
Should GPR use market rent or in-place rent?
Practice varies. Many underwriters calculate GPR at market rent for all units and then deduct loss to lease to reconcile to in-place rents, which highlights upside. Others use in-place rents for occupied units and market for vacant units. Either is acceptable if the method is consistent and clearly labeled.
What is loss to lease?
Loss to lease is the difference between market rent and the actual contract rent on occupied units. If market rent is $1,500 but a tenant pays $1,400, loss to lease is $100 per month for that unit. It is deducted from GPR at market and often represents an opportunity as leases renew.
Related terms
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