Effective Gross Income Calculator Formula
Understand the math behind the effective gross income calculator. Each variable explained with a worked example.
Formulas Used
Effective Gross Income
egi = gpi * (1 - vacancy_pct / 100)Gross Potential Income
gross_potential = gpiTotal Vacancy & Credit Loss
total_vacancy_loss = gpi * vacancy_pct / 100Variables
| Variable | Description | Default |
|---|---|---|
gross_potential_rent | Gross Potential Rent(USD) | 96000 |
other_income | Other Income(USD) | 4800 |
vacancy_pct | Vacancy & Credit Loss(%) | 6 |
gpi | Derived value= gross_potential_rent + other_income | calculated |
How It Works
Effective Gross Income
EGI represents the realistic income a property will generate after accounting for vacancy and credit losses.
Formula
EGI = (Gross Potential Rent + Other Income) x (1 - Vacancy%)
Components
Worked Example
A building has $96,000 potential rent, $4,800 other income, and 6% vacancy/credit loss.
- 01Gross potential income: $96,000 + $4,800 = $100,800
- 02Vacancy loss: $100,800 x 6% = $6,048
- 03Effective gross income: $100,800 - $6,048 = $94,752
Frequently Asked Questions
What is the difference between gross potential and effective gross income?
Gross potential income assumes 100% occupancy and full collection. Effective gross income is more realistic because it subtracts expected vacancy and uncollectible rent.
Should I include concessions?
Yes. Rent concessions (like one month free) effectively reduce income and should be reflected in the vacancy/credit loss allowance or subtracted separately.
How do I estimate credit loss?
Credit loss represents rent billed but not collected from occupied units. Typically 1-2% for well-screened tenants, higher for properties serving tenants with weaker credit profiles.
Ready to run the numbers?
Open Effective Gross Income Calculator