Effective Gross Income (EGI)

Effective gross income is the rent a property can actually collect: gross scheduled rent plus other income, minus vacancy and credit loss. It is the top line of every cap rate calculation, because operating expenses come out of EGI and what remains is net operating income.

On the $500,000 example, $4,000 a month is $48,000 of scheduled rent. A 5% vacancy allowance removes $2,400, leaving $45,600 of EGI. Percentage expenses such as management and maintenance are figured on that $45,600, not on the full $48,000.

Sellers often quote a cap rate built on scheduled rent with no vacancy at all. That overstates net operating income by the full vacancy allowance. Wikipedia has no separate article for the term; its effective gross income link redirects to the gross rent multiplier page, which uses EGI in one version of that ratio.