In Practice
Effective gross income, or EGI, is what a property really brings in once you account for reality. You start with gross potential rent, the total if every unit were leased. You subtract vacancy, concessions and bad debt, then add other income such as parking, pet rent and utility reimbursements. What is left is EGI.
It is the top line the owner works from. Operating expenses are subtracted from EGI to get net operating income, and the expense ratio is measured against it. When your community underperforms, EGI is where you can see why: too much vacancy, too many concessions, uncollected rent or missing fee income.
An example: a community has 2,400,000 dollars of gross potential rent. Vacancy and concessions take 170,000 dollars and bad debt takes 30,000 dollars. Other income adds 150,000 dollars. EGI is 2,350,000 dollars.
A common mistake is treating EGI as a forecast you cannot influence. You can. Faster turns, fewer concessions, tighter collections and better fee setup all show up here. Another is mixing definitions: confirm whether your company counts concessions and bad debt as reductions of income or as expenses.
How to calculate it
EGI = gross potential rent minus vacancy loss, concessions and bad debt, plus other income. Example only: 2,400,000 minus 200,000 plus 150,000 equals 2,350,000 dollars.
Not to Be Confused With
EGI is income before expenses. NOI is what is left after operating expenses come out of EGI.
Effective Gross Income: Common Questions
What is the difference between gross potential rent and effective gross income?
Gross potential rent is the best case if every unit is leased all year. EGI is what you actually expect to collect after losses, plus other income.
Is EGI the same as NOI?
No. EGI is income before operating expenses. NOI is EGI minus operating expenses.
