Gross Income

Gross income is total income before any expense comes out. For a rental it is the scheduled rent for a full year plus parking, laundry, storage and other charges. Cap rate analysis starts here, then subtracts vacancy to reach effective gross income and expenses to reach NOI.

At $4,000 a month the example property has $48,000 of gross scheduled income. Divided by the $500,000 price, that is a 9.6% gross yield. The cap rate of 5.78% is what is left of that 9.6% after vacancy, taxes, insurance, management, maintenance and reserves.

The gap between the two numbers is the reason gross figures mislead. Two buildings with the same gross income can have very different cap rates if one has higher taxes or older systems. The gross rent multiplier works from gross income and is useful for sorting listings, but a price decision needs the net figure.