Effective gross income is what remains after the property’s rent story has been corrected for vacancy, concessions, bad debt, and other income.
It is not NOI. Expenses have not entered the interrogation yet. EGI is the revenue bridge between what the property could bill and what operations can actually use. If the bridge is padded with imaginary income, every return metric downstream inherits the false statement.
The revenue walk, line by line
| Line | Meaning |
|---|---|
| Gross potential rent | Full scheduled rent if everything pays |
| Minus vacancy and credit loss | Units empty or rent not collected |
| Minus concessions | Discounts and free rent |
| Plus other income | Fees, utilities, parking, laundry, pet rent |
| Equals EGI | Revenue before operating expenses |
Do not memorize that table and call the job done. The formula is easy. Proving the inputs is where the fingerprints live.
A $902,000 revenue bridge
Start with $900,000 of gross potential rent.
| Item | Amount |
|---|---|
| Gross potential rent | $900,000 |
| Vacancy and credit loss | -$54,000 |
| Concessions | -$12,000 |
| Other income | +$68,000 |
| Effective gross income | $902,000 |
Yes, EGI can be higher than gross potential rent when other income is meaningful. No, the building has not discovered a loophole in arithmetic. It has $68,000 of revenue outside scheduled rent, and that number now owes you an explanation.
Put other income under a bright light
Other income can be legitimate: RUBS, parking, application fees, laundry, pet fees, storage, and late fees. Each source still has to prove that it belongs in a recurring forecast.
Ask four questions:
- Is it recurring, or did one unusual event inflate the trailing period?
- Is it controllable, or does it depend on leasing volume or resident behavior?
- Is it legal in that market and supported by the leases and operating process?
- Was it actually collected, or merely charged?
One-time lease termination fees should not pose as recurring income. Utility reimbursements need to be checked against utility expenses. Application fees may fall when leasing volume normalizes. A fee schedule is not a cash ledger wearing smaller print.
Make the source documents agree
Tie the EGI pieces to the records that created them:
| EGI piece | Document to open |
|---|---|
| Scheduled rent | Current rent roll |
| Vacancy and bad debt | T-12 plus aged receivables |
| Other income | General ledger detail |
Then compare the model’s year-one EGI with actual trailing EGI. If the model jumps 12% in year one, make the operator explain every dollar of the bridge. “Operational improvement” is not a dollar. It is what people say while the supporting schedule is still in another email.
Refuse the fat revenue cell
Break EGI into rent, vacancy, concessions, bad debt, and other income. Then trace each line to its source and mark every projected change separately.
One fat EGI cell gives five assumptions one lawyer. Split it apart, and suddenly each assumption has to answer its own questions.
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