What does effective gross income (EGI) take into account?

Effective Gross Income (EGI) represents the actual income a property is expected to generate after accounting for various factors that can reduce potential income. One of the critical elements included in the calculation of EGI is anticipated losses from vacancies and collections. This means that EGI is not simply the total potential income the property could generate at full occupancy, but rather a more realistic figure that considers the likelihood of some rental units being vacant or tenants failing to pay their rent.

By factoring in these anticipated losses, EGI provides a clearer picture of the income a property owner can expect to receive over a given period. This makes it a vital metric for property owners, investors, and tax consultants, as it informs decision-making related to property management, investment viability, and tax assessments.

In contrast, full occupancy rental rates refer to the maximum income if the property were fully rented out, without considering losses due to vacancies. Potential maintenance costs address expenses related to keeping the property in good condition but do not factor into the income calculation directly. Properties under renovation may also not be generating rental income, but this aspect relates more to the potential future income rather than the current EGI calculation.