Determining the proportion of potential rental income realized is a critical metric in property management. This involves comparing actual collected rent against the potential gross rent if all units were occupied at market rates. For example, a property with ten units, each renting for $1,000 monthly, has a potential gross rent of $10,000. If only eight units are occupied, and one of the occupied units is rented at a discounted rate of $800, the actual collected rent is $7,800. This scenario demonstrates how actual income can deviate significantly from potential income.
This analysis provides a more realistic view of a property’s financial performance than simply tracking physical occupancy. It highlights the impact of rent concessions, vacancies, and non-payment, enabling informed decisions regarding pricing strategies, marketing efforts, and operational efficiency. Historically, reliance solely on physical occupancy could mask underlying financial vulnerabilities. The evolution towards this more nuanced approach reflects a growing understanding of the complex dynamics influencing profitability in the real estate sector.