How is Effective Gross Income calculated?

Effective Gross Income (EGI) is a crucial metric in property management that represents the total income a property can generate after accounting for certain factors. The correct calculation method involves multiple components to ensure a comprehensive understanding of the income potential.

The process starts with Gross Potential Rental Income, which is the total possible rental income a property can earn if it is fully occupied at market rates. From this figure, vacancy loss and credit loss are deducted. Vacancy loss accounts for the time the property is unoccupied and not generating income, while credit loss reflects potential income lost from tenants who fail to pay their rent.

Additionally, the calculation includes any expense reimbursements, which are funds paid back to the property owner by tenants for shared expenses, and miscellaneous income, which can come from other sources such as fees for parking, laundry, or vending machines.

By combining these elements—adding expense reimbursements and miscellaneous income to gross potential rental income, while subtracting both vacancy and credit loss—one arrives at the Effective Gross Income. This provides a more accurate representation of the income that a property is likely to generate, reflecting real-world operating conditions and financial performance.