Knowledge Base
Effective Gross Income (EGI)
Effective gross income (EGI) is a property's gross potential rent minus vacancy, concessions, and credit losses, plus other income such as fees, parking, and utility reimbursements — the revenue the property actually collects.
How EGI is calculated
Start with gross potential rent — every unit at market rent, fully occupied. Subtract vacancy loss, concessions, and bad debt. Add other income: application and late fees, parking, storage, pet rent, laundry, and utility reimbursements. The result is EGI, the revenue the property actually collects rather than the revenue it theoretically could. The gap between potential and effective is itself a diagnostic — it is where vacancy, concession strategy, and collections problems all become visible in a single number.
Why EGI is the denominator that matters
The two ratios owners watch most are built on EGI. NOI is EGI minus operating expenses. The operating expense ratio is expenses divided by EGI — with a working consensus of 35 to 50 percent in multifamily, per data providers such as HelloData. Use gross potential rent as the denominator instead and every ratio flatters itself: vacancy disappears, the expense ratio drops, and the property looks better run than it is. Underwriters use EGI precisely because it refuses to give credit for income that was never collected.
Common mistakes
Confusing EGI with gross potential rent is the most common error, and it always errs in the optimistic direction. Forgetting other income is the reverse mistake — fee, parking, and reimbursement income is real revenue, and excluding it overstates the expense ratio. The subtler failure is treating EGI as the only lever: both sides of the ledger move NOI, but expense savings arrive without vacancy risk, which is why operators pair revenue work with a hard look at operating expense reduction.
Related terms
Start with one property and one quarter
Send us a quarter of invoices and we will show you what it should have cost. If there is nothing there, we will tell you that too.
