Before taking on a commercial real estate investment, it’s crucial to assess the potential risks and rewards by calculating key metrics, including gross scheduled income (GSI), among others. These metrics will help you make informed decisions about the investment’s profitability and viability.
What is gross scheduled income (GSI)
Gross scheduled income (GSI) is the total income a property can generate if fully occupied and leased at market rates, including income from non-rental sources such as parking or vending machines. Gross scheduled income is sometimes also called gross potential income (GPI).
That said, it’s easy to confuse gross scheduled income with related metrics like effective gross income, gross potential rent, and net operating income. Here’s how these various terms differ:
GSI vs. effective gross income
While gross scheduled income measures a property’s total potential income, effective gross income (EGI) measures how much the property earns after subtracting vacancy and credit loss.
Vacancies refer to empty units not currently generating rent, and credit loss refers to tenants who fail to pay rent or only pay a portion.
For example, assuming a vacancy and credit loss rate of 5%, a property with a $100,000 gross scheduled income would have a $95,000 EGI: $100,000 – ($100,000 x 0.05) = $95,000
GSI vs. gross potential rent
Unlike gross scheduled income, gross potential rent (GPR) measures only rental income. In other words, it does not account for income from other sources, such as parking or laundry machines.
That means a property with a gross scheduled income of $100,000, of which $10,000 comes from non-rental income sources, would have a gross potential rent of $90,000: $100,000 – $10,000 = $90,000
GSI vs. net operating income
Net operating income (NOI) measures how much of a property’s income is left over after deducting operating expenses.
For example, a rental property with an EGI of $95,000 and $40,000 in annual operating expenses would have an NOI of $55,000: $95,000 – $40,000 = $55,000
Components of gross scheduled income
Gross scheduled income comprises all of the following:
| Potential rent from occupied units | This is the market monthly rent for currently leased units |
| Potential rent from vacant units | This is the market monthly rent for currently empty units |
| Additional income sources | This is any income from non-rental sources, such as parking, laundry machines, or vending machines |
| Rental escalations or step-ups | These are scheduled rent increases agreed upon in the lease (e.g., to account for inflation) |
How to calculate gross scheduled income
Calculating gross scheduled income is relatively simple. Just add up a property’s potential income from rent and other sources, assuming 100% occupancy.
For example, let’s say a multifamily property has 100 rental units, and market rent is $1,000 per month. In addition, the property has 100 parking stalls, which rent for $50 per month, and a laundry facility that generates an average of $1,500 per month.
Here’s a breakdown for calculating the gross scheduled income:
- Monthly potential rental income = 100 x $1,000 = $100,000
- Monthly parking income = 100 x $50 = $5,000
- Monthly laundry income = $1,500
- Monthly GSI = $100,000 + $5,000 + $1,500 = $106,500
- Annual GSI = $106,500 x 12 = $1,278,000
The property has a gross scheduled income of $1,278,000.
Common mistakes when calculating GSI
Here are some common mistakes to avoid when calculating gross scheduled rent:
Don’t forget to include all sources of income, not just rental income. This can include income from vending machines, storage units, pet fees, laundry facilities, and more.
In addition, carefully track other income so you can make accurate forecasts. This requires keeping good records and regularly reviewing them to keep gross scheduled income current.
Benefits of gross scheduled income
Now that you know how to calculate gross scheduled income, consider the benefits:
- It provides a comprehensive view of a property’s income potential.
- It serves as a foundation for calculating other key financial metrics:
- You can subtract vacancy and credit loss from GSI to determine the property’s effective gross income (EGI).
- You can subtract operating expenses from EGI to calculate Net Operating Income (NOI), which is crucial for calculating cash flow, internal rate of return (IRR), equity multiple (EM), and other commercial real estate valuation methods.
- It helps in qualifying for financing, as lenders often base mortgage approvals on a property’s ability to generate sufficient income to cover loan repayments.
How to use GSI to evaluate property performance
One way to evaluate a property’s performance is to compare its gross scheduled income to its effective gross income.
For example, if a property has a GSI of $100,000 and an EGI of $99,000, that tells you the property is performing near its highest potential vis-à-vis vacancy and credit loss, and there’s little room for improvement.
On the contrary, if the same property has an EGI of $70,000, that means $30,000 per year is being lost to vacancies or tenants who aren’t paying full rent. In other words, there’s much more opportunity to improve operations and increase the property’s income.
Factors affecting gross scheduled income
The following factors impact gross scheduled income:
| Number of rental units | The number of renal units in the property |
| Market rent per unit | The average rent for similar nearby rental units (aka comparables) |
| Rental escalations or step-ups | Scheduled rent increases agreed upon in the lease |
| Non-rental income streams | Any property income not derived from rent, such as vending machines, laundry facilities, and parking |
To maintain an accurate gross scheduled income, track any changes to these factors and update GSI accordingly.
Risks associated with gross scheduled income
Of course, relying on gross scheduled income has its risks.
For one, GSI is just an estimate, not a guarantee. The actual GSI could be higher or lower than your calculations, so consider gross scheduled income a soft figure that could change.
Furthermore, few properties ever generate their full gross scheduled income. Most lose revenue to vacancies, turnover, non-paying tenants, or submarket rents (aka loss to lease or LTL).
For instance, in Q1 2024, the U.S. vacancy rate was 20.2% for offices, 8.7% for multifamily, 5.8% for industrial, and 5.4% for shopping centers.
That means, on average, a U.S. office with a GSI of $500,000 lost about $100,000 to vacancies in Q1 2024, resulting in an EGI of $400,000, a risk few may have predicted in Q1 2022 when the vacancy rate for U.S. offices was much lower at 12.6%.
Meanwhile, a shopping center with the same GSI lost only $27,000 to vacancies.
How to maximize gross scheduled income to unlock higher earnings
While many investors focus on maximizing NOI (and a property’s value by extension), you can also maximize gross scheduled income to unlock higher earnings.
Add rent escalations to leases
One way to boost GSI is to include regular rental escalations in leases.
Let’s say you have a ten-year lease. Instead of deferring to the current market rent to calculate gross scheduled income, you can have the tenant agree to 2% annual rent increases, thereby increasing GSI each year. Here’s what GSI might then look like:
- Year 1: $500,000
- Year 2: $510,000 ($500,000 x 1.02)
- Year 3: $520,200 ($510,000 × 1.02)
- Year 4: $530,604 ($520,200 × 1.02)
- Year 5: $541,216 ($530,604 × 1.02)
- Year 6: $552,040 ($541,216 × 1.02)
- Year 7: $563,081 ($552,040 × 1.02)
- Year 8: $574,343 ($563,081 × 1.02)
- Year 9: $585,830 ($574,343 × 1.02)
- Year 10: $597,547 ($585,830 × 1.02)
By Year 10, you’ve increased GSI by nearly $100,000 (20% of the original $500,000).
Add new income streams
Consider other ways your property could generate income besides rent.
For instance, as the owner, you could charge fees for parking, storage units, vending machines, laundry services, pets, and more. If the property is located in a high-traffic area (e.g., next to a freeway), consider selling advertising/signage space to other businesses.
Add value to the property
Of course, you can always improve the property itself to command a higher market rent and increase gross scheduled income by extension.
For example, you could renovate the property’s rental units, repaint the building’s exterior, upgrade common areas, or install modern amenities like keyless locks or video doorbells—anything to improve the property’s quality and justify higher rents.
Conclusion
Ultimately, gross scheduled income (or gross potential income) is just one of many metrics you should have in your CRE work arsenal. However, it’s an essential measure, on which many others depend (e.g., gross potential income, gross potential rent, net operating income, etc.)
Now that you know how to calculate and apply gross scheduled income, you are better positioned to evaluate property performance, conduct a commercial property appraisal, and make better investment decisions.
