Effective Gross Income - EGI

AAA

DEFINITION of '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. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Operating Expense Ratio - OER

    A measure of what it costs to operate a piece of property compared ...
  3. Curb Appeal

    The general attractiveness of a house or other piece of property ...
  4. Flipping

    A type of real estate investment strategy in which an investor ...
  5. Alligator Property

    In real estate, when the cost of mortgage payments, property ...
  6. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  2. Home & Auto

    Top Tips For Successfully Renting Out Your Home

    Renting out your home can be a great way to ride out a real estate slump - if you do it right.
  3. Home & Auto

    Rental Properties: Cash Cow Or Money Pit?

    Create a valuation system to forecast the profitability of an income-producing property.
  4. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  5. Home & Auto

    Becoming A Landlord: More Trouble Than It's Worth?

    On the surface, being a landlord seems likes like a surefire bet, but it's usually more headache than it's worth.
  6. Taxes

    Vacation Home Or Income-Producing Investment?

    There is an alternative to letting your cottage sit empty all year, but turning a profit won't be easy.
  7. Personal Finance

    Can't Sell Your Home? Rent It

    Find out how to profit from your property when the housing market dips.
  8. Investing Basics

    Find Income-Generating Properties Online

    Discover the best websites for finding valuable properties that can earn you income.
  9. Credit & Loans

    How Does a Lease Work?

    A lease is an agreement between two parties where the lessor owns property that it allows the lessee to use pursuant to terms of the agreement.
  10. Investing News

    3 Hotel REITs that Outperformed the Market

    There are quite a few REITs that own and operate a collection of hotels and other lodging properties. They are known as hospitality REITs, and in recent years they have realized a reasonable ...
RELATED FAQS
  1. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  2. What is the difference between adjusted and regular funds from operations?

    While regular funds from operations measures the cash flow generated by the operations of a real estate investment trust ... Read Full Answer >>
  3. What are examples of typical leasehold improvements?

    Typical leasehold improvements include partitioning a large, open space into smaller, more structured areas such as dressing ... Read Full Answer >>
  4. How much of the global economy is comprised of the real estate sector?

    The commercial and residential real estate industry generated an estimated $3 trillion in 2014, with some 35% of sector revenue ... Read Full Answer >>
  5. What is the process for a building owner depreciating leasehold improvements in a ...

    As long as the building owner is the person or entity that provides leasehold improvements, then the owner can depreciate ... Read Full Answer >>
  6. How can I invest in tax liens?

    An individual can invest in tax liens by identifying available liens and then participating in auctions where property tax ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  2. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  3. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  4. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  5. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  6. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!