Effective Gross Income (EGI)
Potential gross income minus vacancy and collection losses, plus other income (laundry, parking, late fees). EGI represents the income a property is actually expected to collect.
EGI = Potential Gross Income - Vacancy/Collection Loss + Other Income. Potential gross income assumes 100% occupancy at market rents. The vacancy and collection loss deduction accounts for anticipated vacancies between tenants and rent that is owed but not collected. The vacancy rate should be market-derived, based on comparable rental properties in the area. Other income includes any revenue the property generates beyond rent — coin laundry, parking fees, storage rentals, pet fees, and late charges. EGI is the starting point for calculating NOI.
Related Terms
Net Operating Income (NOI)
NOIThe annual income remaining after deducting all operating expenses from effective gross income, but before deducting debt service (mortgage payments) and income taxes.
Vacancy Rate
The percentage of available rental units or space that is unoccupied at a given time.
Market Rent
The rental income a property would most likely command on the open market, based on analysis of comparable rental properties in the area.
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
More in Income Approach
View allCapitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
Gross Rent Multiplier (GRM)
GRMThe ratio of a property's sale price to its gross monthly (or annual) rental income.
Discounted Cash Flow Analysis (DCF)
DCFA yield capitalization technique that estimates property value by projecting future cash flows (income minus expenses) over a holding period and discounting them to present value using a market-derived discount rate..
Operating Expenses
The recurring costs of owning and operating an income-producing property, including property taxes, insurance, management, maintenance, utilities, and reserves for replacement.