What Is Effective Gross Income (EGI)?
Start with GPI — the theoretical ceiling — and then subtract reality. That’s Effective Gross Income, or EGI.
Start with GPI — the theoretical ceiling — and then subtract reality. That’s Effective Gross Income, or EGI.
The formula: EGI = GPI − Vacancy & Credit Loss + Other Income
Vacancy and credit loss represent the income you don’t collect: empty units, tenants who default, or concessions (like “first month free” offers). A market-rate apartment complex typically runs 5–8% vacancy. A single-tenant industrial building might sit at 0% — until the tenant leaves, at which point it jumps to 100%. Understanding vacancy risk is inseparable from understanding EGI.
Other income adds back revenue that isn’t from base rent: laundry machines, parking fees, storage unit rentals, pet fees. In a large apartment complex, other income can add $100–$150 per unit per year. It won’t transform a bad deal into a good one, but it absolutely counts.
Here’s why EGI matters in practice: when a broker quotes you an income figure for a property, ask which number they’re using — GPI or EGI. Brokers marketing a property often lead with GPI because it sounds larger. Underwriters analyzing a loan use EGI because it’s closer to what the bank will actually receive.
A common error for new investors is building a financial model starting from GPI while forgetting to apply vacancy. The result: an NOI that looks strong on paper but collapses the moment one tenant moves out. EGI forces you to build in the buffer.
Learn this properly
EGI is one of the core numbers in commercial real estate. The Language of CRE course teaches it alongside every other metric you need to read a deal, with worked examples and practice questions.
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Common questions
What is Effective Gross Income (EGI)?
Start with GPI — the theoretical ceiling — and then subtract reality. That’s Effective Gross Income, or EGI.
Why does EGI matter in a commercial real estate deal?
The formula: EGI = GPI − Vacancy & Credit Loss + Other Income Vacancy and credit loss represent the income you don’t collect: empty units, tenants who default, or concessions (like “first month free” offers). A marketrate apartment complex typically runs 5–8% vacancy.
Related terms
[Gross Lease vs. Net Lease](/gross-lease-vs-net-lease/) · [Gross Potential Income (GPI)](/gross-potential-income/)
Educational definition only. Not investment, financial, or brokerage advice.