What does the term "gross up" refer to?

The term "gross up" typically refers to calculating the total rent or income of a property without accounting for certain expenses, particularly in commercial real estate. This practice is important as it provides a clearer view of a property's potential income.

When using "gross up," the most relevant context involves increasing the reported income figure to reflect a scenario where vacancies and collection losses are minimized or considered. This is particularly useful for understanding the maximum potential revenue of a property if it were fully occupied. Accurate valuation assessments are crucial for investors and lenders to understand the property's true value.

The notion of dividing variable expenses by the occupancy rate does not align with the standard definition of "gross up," as this calculation involves adjusting income figures rather than expenses. Instead, the correct understanding involves focusing on the income aspects rather than the expense variables or occupancy rates, leading to a clearer assessment of a property's financial outlook.