Effective Gross Income Defined
Effective Gross income is also known as EGI. This number is one of the first things you will want to look at when determining a property's income potential. This will be a key figure in determining the Net Operating Income.
Keep in mind that you can add other income sources such as parking, vending machines, laundry, etc...
The following is an example of calculating EGI:
Gross Income – Vacancy Costs (vacancy rate (%) x income = $ amount) – Credit Loss (i.e. collections, evictions, etc) = Effective Gross Income (EGI)
For example, using the same property information above:
Gross Income: $120,000
(minus)Vacancy Rate (20%): $24,000
(minus) Credit Loss (2%): $2400
(plus) Additional Miscellaneous Income (Laundry, Parking, etc.): $3500
=Effective Gross Income (EGI): $97,100
This is a continuation of a serious entitled: The Top 10 Terms of Commercial/Investment Real Estate.
Example Source: Biggerpockets.com
Leave a Reply.