What is 'Effective Gross Income - EGI'

The amount of income produced by a piece of property, plus miscellaneous income, less vacancy costs and collection losses. Effective gross income is a metric commonly used to evaluate the value of a piece of investment property.


For example, an apartment complex has an income of $500,000 if it is able to rent out all of its apartments (full occupancy). Historically, the complex is unable to fill 20% of its units, meaning that it is unable to collect $100,000 ($500,000 * 0.2). The EGI for the property is $500,000 - $100,000, or $400,000.

BREAKING DOWN 'Effective Gross Income - EGI'

Several factors can influence vacancy costs and collection losses for a piece of property. Investors must estimate the costs of the income lost of what can be generated, but the market may cause this rate to go up or down. When looking to purchase investment property, potential investors use the EGI to determine how much they are willing to pay for the property based on how much they expect to make in earnings. Low EGI and high costs are a sign to think twice about buying.

RELATED TERMS
  1. Vacancy Rate

    The vacancy rate is a numerical value calculated as the percentage ...
  2. Form 4797

    A tax form distributed by the Internal Revenue Service (IRS) ...
  3. Property Manager

    An individual or company responsible for the day-to-day functioning ...
  4. Curb Appeal

    The general attractiveness of a house or other piece of property ...
  5. Property Management

    The administration of residential, commercial and/or industrial ...
  6. Operating Expense Ratio - OER

    A measure of what it costs to operate a piece of property compared ...
Related Articles
  1. Investing

    Explaining the Income Approach

    The income approach is one of the three main methods that appraisers use to value property.
  2. Investing

    What You Should Know About Real Estate Valuation

    Anyone involved in a real transaction can benefit from gaining a basic understanding of the different methods of real estate valuation.
  3. Managing Wealth

    Real Estate Valuation: What You Should Know

    Anyone from mortgage lenders to property buyers and sellers can benefit from a basic understanding of real estate valuation.
  4. Investing

    Costs New Investors in Real Estate Do Not Consider

    As lucrative as real estate investment can be, there are a multitude of costs that new real estate investors must consider.
  5. Investing

    8 Must-Have Numbers For Evaluating A Real Estate Investment

    These calculations can help you figure out if a particular property will be a valuable investment.
  6. Retirement

    The Income Property: Your Late-In-Life Retirement Plan

    You're nearing retirement age and you don't have the nest egg you need. Here's how an income property can help you make up the shortfall.
  7. Investing

    Net Operating Income

    Net operating income (NOI) reflects income after operating expenses are deducted, but before income taxes and interest are deducted.
  8. Investing

    3 Reasons to Invest in Multi-family Real Estate

    Here are three reasons to consider investing in multi-family real estate.
  9. Investing

    Is Property Management Worth it? Ask Yourself These 8 Questions

    If you own rental properties, ask yourself these questions when deciding who should manage them.
RELATED FAQS
  1. An appraiser forms the following estimates for a rental property ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  2. What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual ... Read Answer >>
Hot Definitions
  1. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  2. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  3. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  4. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  5. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities ...
Trading Center