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.

INVESTOPEDIA EXPLAINS '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 FAQS
  1. Which REITs pay the highest dividends?

    A real estate investment trust (REIT) is a financial security that trades like a stock on major market exchanges. However, ... Read Full Answer >>
  2. Why can real estate be a good addition to a traditional stock and bond portfolio?

    Real estate can be a good addition to a traditional stock and bond portfolio because it offers diversification. Real estate ... Read Full Answer >>
  3. When should a real estate broker release earnest money deposit funds?

    As soon as an agent or broker accepts an earnest money deposit, he becomes an escrow agent. This means that, in most cases, ... Read Full Answer >>
  4. How do earnest money deposits work in a short sale?

    Earnest money is required in a short sale transaction, although the funds do not necessarily have to be deposited into an ... Read Full Answer >>
  5. What is a fiduciary deed and when is it useful?

    A fiduciary deed is used to transfer property rights in a sale when a fiduciary must act as an executor of the sale on behalf ... Read Full Answer >>
  6. Are all mortgage backed securities (MBS) also collateralized debt obligations (CDO)?

    Mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) are different concepts with frequent overlap ... Read Full Answer >>
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. Home & Auto

    Buying a Home? The Best Places Share This Feature

    The most lucrative areas to invest in a home are cities where job growth is robust.
  9. Personal Finance

    Commercial Real Estate: How it Works

    The ins and outs of what commercial real estate companies do.
  10. Economics

    What is Earnest Money?

    An earnest money deposit shows the seller that a buyer is serious about purchasing a property.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center