# Common Joe 'n Jane Real Estate Wiki

Real estate exam prep made easy! Dive into our wiki for key concepts and study materials tailored for success in your exams.

<--Back to Wiki Home Potential Gross Income Multiplier (PGIM):

Potential Gross Income Multiplier (PGIM) is a ratio that compares a property's potential gross income to its asking price. This ratio is used to estimate the value of an income-generating property and to compare the value of different properties.

Formula:

PGIM = Property Price / Potential Gross Income

Example:

Let's say that a property is listed for sale at \$500,000 and has a potential gross income of \$50,000 per year. The PGIM for the property would be 10 (\$500,000 ÷ \$50,000). This means that the asking price is equivalent to 10 times the property's potential gross income. "A Deep Dive for Real Estate Agents and Appraisers"

The Potential Gross Income Multiplier (PGIM) is a useful tool for comparing the value of different real estate investment properties. It helps investors quickly assess the relative value of a property by comparing its purchase price to its potential gross income. The PGIM ratio can be calculated using the following formula:

PGIM = Property Price / Potential Gross Income

A lower PGIM ratio indicates that a property may be a better value, as the purchase price is relatively low compared to the income it can potentially generate. In other words, the investor would be paying less for each dollar of potential income the property could produce.

To illustrate this concept, let's compare two properties:

Property A:

Property Price: \$500,000
Potential Gross Income: \$50,000 per year
PGIM = \$500,000 / \$50,000 = 10
Property B:

Property Price: \$400,000
Potential Gross Income: \$50,000 per year (assuming improvements or other factors that increase its income potential)
PGIM = \$400,000 / \$50,000 = 8

In this example, Property B has a lower PGIM ratio (8) than Property A (10). This lower ratio indicates that Property B is a better value for the investor, as they would be paying less for each dollar of potential income generated by the property.

The Potential Gross Income Multiplier (PGIM) is a useful tool for real estate investors and appraisers to quickly estimate the value of an income-generating property based on its potential gross income. However, it's important to note that the PGIM is just one of many metrics that should be considered when valuing a property, and it has some limitations.

For example, the PGIM does not take into account factors such as operating expenses, vacancy rates, and other factors that can impact a property's actual or effective gross income. Therefore, it's important to use the PGIM in conjunction with other metrics, such as net operating income (NOI), cap rates, and comparable sales data, in order to get a more accurate picture of the property's value.

Additionally, the PGIM is most useful when comparing similar income-generating properties in the same market. It may not be as useful when comparing properties in different markets or with different income streams, such as retail properties versus apartment buildings.

In summary, the PGIM is a useful tool for estimating the value of income-generating properties, but it should be used in conjunction with other metrics and market data in order to get a more accurate picture of the property's value. "Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"

The Potential Gross Income Multiplier,
Is a ratio that's no denier.
It compares a property's income to price,
To see if it's a good deal or not so nice.

Imagine a property with income in sight,
Potential gross income, oh what a delight!
It's \$50,000 a year, that's quite a sum,
But what's the asking price, we need to come?

If the asking price is \$500,000, you see,
We can use the PGIM to check its degree.
We divide the price by potential income,
To see if the property's value is in tune.

If we get a ratio of 10 or lower,
It's a good deal, what a great show-er!
But if it's higher, we may need to think,
If the property's value is really in sync.

So remember this, my friend, it's true,
The Potential Gross Income Multiplier's for you!
To compare properties and value in sight,
And make sure the price is really just right!