What Is Effective Gross Income?
Effective gross income (EGI) is the rental income a property is expected to actually collect: gross potential rent, minus vacancy and credit losses, plus other income such as parking or laundry. Operating expenses are subtracted from EGI to arrive at net operating income.
Effective Gross Income in plain English
Effective gross income is realistic rental income. Start with the rent you would collect if every unit were always leased and every tenant paid, take out an allowance for vacancy and unpaid rent, then add other income such as parking or laundry.
It is the top line of a property's operating statement: subtract operating expenses from it to get net operating income.
Formula
EGI = Gross Potential Income − Vacancy and Credit Loss + Other Income- Gross Potential Income
- Rent at full occupancy for a year.
- Vacancy and Credit Loss
- Rent lost to empty units and tenants who do not pay.
- Other Income
- Parking, laundry, storage, pet and similar fees.
Worked example
Effective gross income for a single-family rental
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Market rent
- $3,000 a month
- Vacancy and credit loss
- 5%
- Other income (pet fees, parking)
- $1,200 a year
| Step | Calculation | Result |
|---|---|---|
| 1. Gross potential rent | $3,000 × 12 | $36,000 |
| 2. Less vacancy and credit loss | $36,000 × 5% | $1,800 |
| 3. Plus other income | $1,200 | $1,200 |
| 4. Effective gross income | $36,000 − $1,800 + $1,200 | $35,400 |
Effective gross income: $35,400. Plan around $35,400, not $36,000: it is the income you can expect to collect. Operating expenses come out of this figure to give NOI.
What this calculation leaves out
- Use local evidence for vacancy; a unit that is rented today will still turn over.
Calculate Effective Gross Income
Effective gross income calculator
Gross Potential Income × (1 − Vacancy %)
Why it matters
Budgeting from EGI rather than full scheduled rent builds normal turnover and unpaid rent into the numbers before any expense is counted.
When Effective Gross Income is used
- Building a rental budget or pro forma.
- Calculating operating expense ratios (expenses ÷ EGI).
- Checking a seller's income claims against a realistic vacancy allowance.
Common mistakes
- Skipping the vacancy allowance because the unit is rented today.
- Counting one-time income, such as a lease-break fee, as recurring.
- Calling EGI "net" income - expenses have not been deducted yet.
Effective Gross Income: frequently asked questions
What is the difference between gross income and effective gross income?
Gross potential income assumes full occupancy; effective gross income deducts vacancy and credit loss and adds other income.
How do you calculate EGI?
Take gross potential rent, subtract vacancy and credit loss, and add other income such as parking or laundry.
Is EGI the same as NOI?
No. NOI is EGI minus operating expenses.
More Investing Terms
Recommended next step
Build EGI, NOI and cash flow for a specific rental.
Rental cash flow calculator →Apply it to a specific property: Rental Property Analysis.
Sources and review
No regulator defines this term; the page follows common industry practice.
Where this applies: Not regulated. Investment and valuation ratios are industry and appraisal conventions; lenders, appraisers and analysts may define inputs differently, so check how a figure was calculated.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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